Fed Implications Of SVB Crisis - Guiding In A Blackout (2/3)

As for Fed policy, SVB is not a game-changer but it will certainly alter the discussion if not the outcome of the March FOMC.

• The pre-FOMC blackout which starts tonight couldn't come at a worse time, creating a limited window in which to comment pre-Mar 22nd decision on both the Fed's view of potential systemic risk from SVB (and the broader stability implications of rising rates and how that feeds into the economic outlook), or the latest key macro data (including today's payrolls and next week's inflation report).
• Even worse, the blackout comes days after Powell put a potential 50bp hike on the table. If he hadn't, we suspect that the discussion going into blackout would be around a dovish 25bp hike, with no chance of 50 (vs 50%/50% probability currently).
• The Fed has a long history of hiking rates until something "breaks". To be sure, it would be taking it too far to interpret the SVB episode as the beginning of a systemic crisis, let alone evidence that they've done enough to quell inflation.
• And while Powell will have to address financial stability concerns at the press conference, he will probably maintain the view that the banking sector remains healthy overall. It's too early to panic.