Why the Fed will Cut and Must do it SOON!Well here's something to think about and why I think the Fed must start cutting rates soon ( as early as summer imho ) According to Bloomberg the unrealized losses that are sitting on bank balance sheets are as much as 620B dollars. The vast majority of these unrealized losses are long dated bonds that have lost as much as 30 - 50% due to the rapid increase in the Fed tightening that has taken place. Depositors are rapidly pulling their money out of these banks and putting it money market funds that yield 5+ %. And who wouldn't blame them as banks still only pay less than 1% on your deposit. These banks are now stuck between a rock and hard place as they have to increase their deposit rate to stop this flight of capital out of their banks. But if they raise their deposit rates to match what the mm funds pay then that will essentially bankrupt them as they cannot pay these higher rates to retain deposits.
Either they do that and face bankruptcy but if they don't they will eventually face an insolvency crisis the same as what happened with SVB bank and First Republic etc. Either way banks are screwed with interest rates where they are. While the big banks can survive in this interest rate environment, the regionals and smaller banks cannot. Almost all of them will go out of business by the end of this year due to deposit flight if interest rates don't go down. If that happens forget about a recession, we are looking at a depression as 50 -75% of all loans come from these smaller banks. The Fed will have no choice but cut rates and imho I think they will have to do this soon despite where inflation is at. PMs will skyrocket when this UHH UHH moment comes!