Topline
Analysts at Goldman Sachs on Sunday said it “no longer expects” the Federal Reserve to hike interest rates later this month, after federal regulators moved to swiftly shield the U.S. banking system from the crisis triggered by the rapid collapse of Silicon Valley Bank.
The Federal Reserve was previously expected to announce a rate hike of between 25 and 50 basis … [+]
Key Facts
In an analyst note, Goldman Sachs Chief Economist Jan Hatzius pointed to the “recent stress in the banking system” as the reason behind the no rate hike forecast.
Last week, economists and traders had signaled they were expecting a 50 basis points hike following the Fed’s meeting later this month.
The note added that there is now “considerable uncertainty about the path beyond March,” adding that it expects 25 point hikes in May, June and July and a terminal rate of 5.25-5.50%.
Hatzius and his team had previously forecast that the Fed’s rate hikes will reach a top level of 5.75%, with other hawkish predictions putting the number as high as 6%.
Key Background
On Sunday, the Treasury Department announced regulators will step in to ensure that all deposits at Silicon Valley Bank—including funds not covered by the federal deposit insurance—will be safeguarded. In a joint statement issued with the Federal Reserve and Federal Deposit Insurance Corporation, the Treasury said it had taken the action to “protect the U.S. economy by strengthening public confidence in our banking system.” A similar rescue package was announced for depositors at the previously crypto-focused Signature Bank, which was also shut down and taken over by regulators on Sunday. The tech-focused Silicon Valley Bank faced a similar fate on Friday following a bank run. A day earlier, the SVB had announced the sale of $21 billion worth of securities at a loss of $1.8 billion, a move the lender said it was forced to take as challenging market conditions and high cash burn among its clients led to “lower deposits than forecasted.”
News Peg
Federal Reserve Chair Jerome Powell’s remarks to Congress last week raised concerns about steeper than expected rate hikes, causing markets to plunge. Powell took a more hawkish tone than expected as he defended the Fed’s decision to raise interest rates to a 16-year high in an effort to clamp down on inflation. “We will stay the course until the job is done,” Powell said, adding that the regulator is prepared to enact rate hikes at a faster than expected pace. In a testimony delivered before the House Financial Services Committee a day later Powell reiterated the Fed’s goal to bring inflation back down to 2% as he warned of a long and bumpy road ahead. The Federal Reserve’s next meeting is set for March 22.
Further Reading
Fed Bets Pared as Goldman Scraps March Hike Call on Flaring Risk (Bloomberg)
FDIC Will Protect All Silicon Valley Bank Deposits After Sudden Collapse, Treasury Says (Forbes)
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