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Banking System Instability
- The banking system's instability stems from the Fed's misjudgment of deposit stickiness.
- Deposits are now highly mobile due to technology, forcing banks to realize losses as people seek better yields.
Interest Rates and Banking System
- The current banking system cannot operate with interest rates at 4% or higher.
- A potential recession could lower inflation, but the Fed did not anticipate the banking sector's fragility.
Recommendations for the Fed
- The Fed needs to conduct a thorough analysis of the banking sector's vulnerabilities and acknowledge regulatory failures.
- They should also be transparent about the need for lower interest rates to mitigate the banking crisis and support small businesses.