Goldman Sachs: Analysts at the leading US bank Goldman Sachs Group withdrew their forecast, which called for a 25 basis point increase in the key interest rate by the Federal Reserve System (Fed) at its March meeting, in light of the bankruptcy of two banks and increased risks in the financial industry.
Regulators in the US have taken the decision to close Silicon Valley Bank, 16th in terms of assets in the country, and the smaller Signature Bank. The banks came under the control of the Federal Deposit Insurance Corporation (FDIC).
The regulators assured that all bank depositors would receive full compensation, and the Fed announced the issuance of preferential loans to banks to strengthen their liquidity. In addition, the US Treasury will allocate up to $25 billion from the stabilization fund to support this program.
Such measures « will provide ample liquidity to banks facing a run on deposits and boost depositor confidence, » wrote Ian Hatzius, senior economist at Goldman. However, he no longer waits for a Fed rate hike at next week’s March meeting and pointed to « significant uncertainty » about the future course of rates.
The next Fed meeting will take place on March 21-22, and most analysts believe that following its results, the rate will be raised by 25 bp. Market participants estimate the probability of such a scenario at 85%, assuming a 15% chance that the rate will be left at the current level of 4.5-4.75%. Last week, the market considered the rate hike by 50 bp as the most likely scenario.
« We still look forward to a 25 bp rise next week, » said Michael Feroli, JPMorgan Chase & Co senior economist. « Even before the banking sector troubles, we thought a 50 bp rise would be inappropriate, » and we still think so. »