A debt-ceiling dilemma, regional-banking woes and the market’s apparent predilection for ultralow interest rates have one common factor, according to Jim Grant, prominent author of Grant’s Interest Rate Observer: The Federal Reserve.
The respected author and market pundit says a period of artificially low interest rates that hovered at or near 0% gave root to the challenging environment that many investors are wrestling with now. That hunt for richer returns has caught many average investors offside in recent years but it has also left many financial institutions wrong-footed, including banks such as First Republic, which maintained a large portfolio of jumbo mortgages to wealthy clients on its balance sheet before most of the bank was bought by JPMorgan Chase & Co JPM . Such assets, across many banks, have lost value amid an aggressive succession of interest-rate increases by the Fed to quell high inflation.
Concerns about the U.S. government’s ability to pay its bills, with the U.S. bumping up against a $31.4 trillion borrowing limit amid a divided Congress, also fuels uncertainty.