Following the collapse of Silicon Valley Bank last week, Goldman Sachs has abandoned its prediction that the US Federal Reserve will announce another rate hike at its next meeting.
In a note published on Sunday local time, the firm acknowledged announcements from the US Treasury, the Fed, and the Federal Deposit Insurance Corporation (FDIC) to help stabilise the banking system in response to recent bank failures and the risk of continued deposit outflows.
“We expect these measures to provide substantial liquidity to banks facing deposit outflows and to improve confidence among depositors,” commented Goldman Sachs chief economist Jan Hatzius.
Regardless, Goldman Sachs does not believe the Federal Open Market Committee (FOMC) will lift rates by 25 basis points (bp) in March as the firm previously forecast.
“In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March,“ said Mr Hatzius.
His comments before the Senate Banking Committee last Tuesday pushed the odds of a 50 bp rate hike at the Fed’s March meeting to almost 70 per cent.
Goldman Sachs still anticipates that hikes of 25 bp will be announced by the Fed in May, June, and July, with a terminal cash rate forecast of 5.25 to 5.5 per cent.
Meanwhile, in its own note published on Sunday local time, J.P. Morgan said that it is continuing to look for a 25 bp rate hike at the Fed’s meeting next week.
“Even before the problems flared up in the banking sector, we thought a 50 basis-point move would be ill-advised, and we still think that is the case,” said J.P. Morgan chief US economist Michael Feroli.
In a joint statement, Mr Powell, US Treasury Secretary Janet Yellen, and FDIC chairman Martin Gruenberg said that they were taking “decisive actions” to protect the US economy by strengthening public confidence in the country’s banking system.
“This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” they said.
Depositors at Silicon Valley Bank, as well as New York-based Signature Bank which collapsed on Sunday, will have access to all of their money starting from Monday.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
