Notable Evercore ISI economist Ed Hyman said the Federal Reserve should consider pausing rate hikes in part because the financial shock has developed with Silicon Valley Bank. “A Fed pause might be a good idea,” Hyman wrote in a note on Sunday, citing the SVB’s debacle along with slowing inflation data. “If the Fed pauses and inflation picks up, they could easily tighten again.” The Fed has raised interest rates eight times in the past 12 months and is expected to raise rates again on March 22. As the Silicon Valley Banking crisis unfolded on Friday, investors were already on the move. quickly reduce bets on a half percentage point increase at that meeting and instead watch only a quarter point increase. The Dow Jones Industrial Average had its worst week since June and 2-year Treasury yields fell the most in two days since the financial crisis when SVB Financial shut down last week and shares Regional bank notes fell in sympathy. “Financial shocks/crisis are part of the tightening cycle and with it the business cycle,” Hyman writes. Regulators on Sunday are reportedly conducting an auction for Silicon Valley Bank, and traders hope that if part of the plan includes attracting all depositors, investors Investors will calm down and the stock market may recover. Although Hyman said it may not be so easy and the Fed pause may be the last thing needed to stabilize markets. The economist points out that it took five weeks for the Fed to cut rates after Long Term Capital Management boomed in 1998. “In those weeks, the S&P fell 5%,” Hyman noted. “So even if we’re at a turning point, we might not be out of the woods yet. The Fed could take a month to react.” —With reporting by CNBC’s Michael Bloom
