DID ANYONE ACTUALLY THINK THAT IT WAS? Meltdown in Deutsche Bank Shares Shows Banking Crisis Is Not Yet Over.

The volatility in the markets reflects the delicate state the U.S. economy is in. On Wednesday, the Fed raised interest rates by a quarter point – less than had been expected as recently as a week before its meeting – as it battles inflation that is still running at levels twice its annual average target of 2%. But, at the same time, Fed Chairman Jerome Powell warned that a credit crunch from the banking crisis could slow the economy in the weeks to come.

At the same time, Treasury Secretary Janet Yellen was telling Congress that not all bank deposits were going to be protected, a statement she later amended to say the government would take “additional steps” if needed to address stability in the banking system.

The Dow fell more than 500 points on Wednesday. The sudden drop in bond yields also suggests that the market believes the next move from the Fed will be to cut rates to spur the economy should a recession occur.

The Fed can fight inflation or it can fight recession but it can’t do both at once. Recessions are supposed to crush demand enough to tame inflation, but there’s still so much stimulus money out there and Washington has no taste for reining in debt-financed borrowing — so who knows.