Intermittent Storms

The Northern Trust Economics team shares its outlook for U.S. growth, employment, interest rates and inflation.

Just a month ago, we were in the grips of a panicked interval for the financial sector. Would the challenges of Silicon Valley Bank (SVB) spill over to other banks, grow into a systemic shock, and spur the next recession? Today, circumstances are far calmer, but the incident has cast a shadow over the outlook. SVB demonstrated that stress can manifest quickly, and some of its challenges are shared by most financial institutions.

The SVB storm did offer a silver lining: Regulators and industry leaders showed their readiness to act to maintain stability. Selective enhancements of deposit insurance curtailed the bank run, while emergency lending facilities ensured banks stay liquid. It is too soon to say a financial crisis has been avoided, but these measures did restore calm.

Lingering concerns about stability have brought the Fed even closer to the end of its hiking cycle. Current inflation and employment readings support the case for a tight monetary policy posture. Further improvement to inflation will keep the Fed on course to cut rates next year; a resurgence in tensions could pull that date forward.

Key Economic Indicators