Market Uncertainty Continues Despite Fed's Soothing Words

The Federal Reserve has warned that recent turmoil in the banking system could lead to tighter credit conditions for households and businesses, weighing on economic activity, hiring, and inflation. The extent of these effects is uncertain, but uncertainty puts downward pressure on stock prices as investors demand more return for their capital. Bank deposits fell by $98.4 billion to $17.5 trillion in the week ending March 15, the largest one-week decline since April 2022. With uncertainty regarding deposits, banks seem likely to be more cautious in their lending, which is a headwind to economic growth.