In the wake of Credit Suisse’s demise, and the second- and third-largest bank failures in U.S. history, institutional investors are worried—but not just about a banking crisis or a potential recession. The world’s top investors think that the latest financial accidents, which were caused, at least in part, by the Federal Reserve’s rapid interest rate hikes, have made ‘70s-style stagflation an even more dire threat.
The Fed was already fighting to fix the toxic combination of high inflation and low growth with interest rate hikes, but now they must do so in the face of financial instability as well, making any additional interest rate hikes all the more risky. As Billionaire investor Bill Ackman put it in a Tuesday tweet, the banking crisis “remains unresolved” which means “this is not an environment into which the Federal Reserve should be raising rates and adding additional pressure on the system.”
