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Analysts at Goldman Sachs said on Sunday they “no longer expected” the Federal Reserve to hike interest rates later this month after federal regulators scramble to quickly protect the US banking system from the crisis brought on by the rapid collapse of the Silicon Valley Bank.
The Federal Reserve was previously expected to announce a rate hike of between 25 and 50 basis points … [+]
Important facts
In an analyst note, Goldman Sachs chief economist Jan Hatzius cited the “recent stress in the banking system” as the reason for the “no rate hike” forecast.
Last week, economists and traders signaled they expect a 50 basis point hike after the Fed meeting later this month.
The note added there is now “significant uncertainty on the way out after March” and adds that it expects hikes of 25 basis points in May, June and July and a final rate of 5.25-5.50%.
Hatzius and his team had previously forecast Fed rate hikes to peak at 5.75%, while other hawkish forecasts put the figure at as high as 6%.
key background
The Treasury Department announced Sunday that regulators will step in to ensure all deposits at Silicon Valley Bank — including funds not covered by federal deposit insurance — are protected. In a joint statement with the Federal Reserve and the Federal Deposit Insurance Corporation, the Treasury Department said it was taking action to “protect the U.S. economy by increasing public confidence in our banking system.” A similar bailout was announced for depositors at previously crypto-focused Signature Bank, which was also shut down on Sunday and taken over by regulators. The tech-focused Silicon Valley Bank faced a similar fate on Friday following a bank run. A day earlier, SVB had announced the sale of $21 billion worth of securities at a $1.8 billion loss, a move the lender was forced to take due to difficult market conditions and a high cash burn at resulted in “fewer deposits than forecast” for its customers.”
news peg
Remarks by Federal Reserve Chair Jerome Powell before Congress last week raised concerns about steeper-than-expected rate hikes, causing markets to tumble. Powell struck a more hawkish tone than expected as he defended the Fed’s decision to raise interest rates to a 16-year high to curb inflation. “We will stay the course until the job is done,” Powell said, adding that the regulator is poised to deliver rate hikes faster than expected. In a testimony delivered a day later before the House Financial Services Committee, Powell reiterated the Fed’s goal of bringing inflation back to 2% while warning of a long and bumpy road ahead. The next Federal Reserve meeting is scheduled for March 22nd.
tangent
Commenting on the federal bailout plan for depositors at Silicon Valley Bank and Signature Bank, President Joe Biden promised in a statement “to hold those responsible for this mess fully accountable.” The statement added that American citizens and businesses “can rest assured that their bank deposits will be there when they need them.”
Further reading
Fed bets cut as Goldman scraps March hike call on flickering risk (Bloomberg)
FDIC will protect all bank deposits in Silicon Valley after sudden collapse, Treasury Department says (Forbes)
