Recipe for A Hard Landing
Banks are weak given the enormous unrealized losses they carry. Without the Bank Term Funding Program, banks would significantly pull back on credit. Credit is the lifeblood of the debt-fueled U.S. economy. Eliminate the Bank Term Funding Program while rates are elevated, and we will have our hard landing.
If the Fed does not cut rates until June, and if the Fed allows the Bank Term Funding Program (BTFP) to expire on March 11th 2024, then it is likely we will see more bank failures, experience a significant pullback in credit and have our economic hard landing this spring.
Should the Fed pull the BTFP in March and slowly cut rates beginning sometime between April and June, we will still likely have a hard landing given prior tightening of the money supply and the lack of the BTFP crutch. Too many banks are dependent on the BTFP and would not extend credit at the same pace without it.
