In a rebuke to Jay Powell, Treasury Secretary Janet Yellen imposes

Everything seemed to be going smoothly.  

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Jerome Powell threaded almost perfectly the needle when he gave a press conference on Wednesday. It wasn't explicitly stated in the FOMC statement that the Fed was pausing, but there was a change in the language. The Fed's statement of "additional policy firming may be appropriate" is an extremely cautious way to say that they might hike again one day. That's a dramatic departure from what they said at the last meeting when they said the Fed would continue to raise the target range. 

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It is worth mentioning that Powell acknowledged explicitly in the press conference following the Fed's rate hike that the financial crisis has had an impact on rate hikes in the past few weeks: "We were clearly on track to continue rate hikes in the past two weeks before these recent events...there is a chance that credit conditions will tighten as a result of the events that took place over the last two weeks." 

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While that is not the equivalent of a pause, it is very close to one. 

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It seemed as if markets were in a good mood at the end of Powell's press conference, as the S&P 500 was essentially unchanged by the time Powell finished his remarks. 

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The market started a downtrend shortly after, and when it reached the bottom it descended straight down by 65 points, banks, in particular, were the hardest hit. 

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It all started with Janet Yellen. Let's take a look at what happened. 

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The U.S. administration's efforts to protect depositors and prevent bank runs were questioned by lawmakers during Yellen's testimony before a Senate appropriations subcommittee, as Powell's press conference was coming to an end. 

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It has been an absolute priority for Yellen and Powell to say that deposits are safe, and by doing so they have implicitly implied that deposits are safe. 

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A day earlier, Yellen said in the Q&A section of her speech to the American Bankers Association: "We are dedicated to ensuring the safety of depositors' deposits."

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A press conference statement by Powell said, "I think depositors can feel confident about the safety of their money." 

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According to Yellen, the FDIC does not plan to provide blanket insurance for all deposits in banks.

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“There has not been any discussion or consideration of blanket insurance or guarantees of deposits that have been made,” she stated. 

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Seeing as how the insurance level for deposits (currently $250,000) is set by Congress, it is not surprising that that is the case at all. After all, everyone is aware that the insurance level can be changed. 

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In spite of this, the bank stocks, which were barely weaker while Powell started his speech, tanked and ended the day as the biggest losers. The S&P Bank ETF (KBE) was down more than 3% for the day as well. 

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The implicit backstop promise does not seem to be as satisfactory as the explicit promise. In my opinion, there is an obvious difference between a backstop implicitly and explicitly promised. 

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In the meantime, there will be Congressional hearings next week to discuss the issue of explicitly raising deposit insurance from $100,000, which was the last increase since 2008. It is clear that the market desires it, regardless of the moral hazard it could create.