(Bloomberg) -- Nice to have a quiet week with no notable bank going bust. It gives us time to sit back, soothe rattled nerves, and contemplate all the other problems. Foremost, again, is the Federal Reserve, which took the middle course on Wednesday between concern over the banking crisis spreading and worries that inflation isn’t yet under control and added a quarter point to rates. Rather than reassure the market, all that did was to raise the how-high-how-soon debate to Kafkaesque levels. Here is a clear explanation of where we are:

Fed Focus

Fed Chair Jerome Powell’s determination to restore price stability outweighed concerns over the banking crisis, and other central bank policy makers have reinforced the view. With further hikes possibly on the cards, foreign exchange and bond markets across Asia continue to feel the effects of the US decision.

The Volcker-Bernanke Twist

History offers some insight. Paul Volcker was the slayer of inflation, Ben Bernanke the crisis firefighter, writes Rich Miller. He suggests Powell may have to be both at once, or worse, must choose between the two roles. Given the number of times Powell has channeled Volcker recently, it might suggest what that choice would be.

How About the ECB?The European Central Bank wasn’t deflected by the banking crisis and went ahead with a half-point cut. This week they’re feeling vindicated by the decision. As bank President Christine Lagarde reiterated this week, “there is no trade-off between price stability and financial stability.” In other words, yes, Powell can do both at once. 

It’s Time to Cut!

Bond markets aren’t buying Powell’s prediction of more rate hikes coming and a base case of no reduction this year. DoubleLine Capital’s Chief Investment Officer Jeffrey Gundlach is among those predicting the Fed will cut soon. That expectation is partly bolstered by the central bank’s own predictions for the economy. As Robin Brooks at the International Institute of Finance put it, “the Fed is bracing for recession.” 

But What About Inflation?

The Fed’s “hawkish pause” is a contradiction in terms, according to a Bloomberg editorial. The editors point out high inflation is the biggest problem the US economy faces and it’s not something that might happen — it’s here now. That concern is underlined in another, more obscure corner of the money markets — the so-called breakeven rates on inflation-linked treasuries — where sentiment is swinging back toward the idea the Fed may ease off too soon. 

How Did the Dollar Take This?It slumped, giving emerging market currencies in Asia some respite. Then it went back up. Like equity markets, which are still more jittery about banking-crisis contagion than inflation, the message is mixed.

What’s the Best Strategy for Stocks?

Do nothing. The banking crisis, a looming recession, pivot-wary central banks and stagflation have made equity markets super volatile, but so far sitting it out has reaped sizeable profits.  

Now that that’s all clear, here’s one last little conundrum for you. How can it be a bad thing for a ruling party to control almost every state government in the country? Australian Prime Minister Anthony Albanese could find out today.

Have a paradoxical weekend.

--With assistance from Michelle Jamrisko.

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