5 ways US bank failures could affect the March 2023 Fed rate decision

The Federal Reserve is meeting this week to decide on the next move on interest rates, just as its years-long battle against inflation collides with a crisis in the financial sector. The Fed’s next move will be closely watched as recent bank failures bring back memories of the 2008 financial crisis. Even ahead of the central bank’s policy decision on Wednesday, investors will be watching for more signs of stress in the global banking sector and additional moves by regulators to provide relief. This is a special newsletter that we send to subscribers Five things And New economy daily to provide an overview of what we’re looking at ahead of the meeting.

There is no dearth of opinions among investors with expectations shifting between the Fed delivering another quarter point hike and a pause. The only certainty is that the Fed will forego a bigger half-point raise that Chairman Jerome Powell tabled just before financial stability concerns emerged. A survey of economists by Bloomberg News found that an average quarter-point hike would push the Fed’s policy rate into a range of 4.75%-5%, and the bond market assigns a probability of about 65% to that possibility. At the height of the banking concerns last week, traders cut the odds of a hike by a quarter point to less than half, while some banks, including Goldman Sachs and Barclays, changed their interest rates and now don’t expect a rate hike.

As things move quickly amid efforts to support troubled lenders from Credit Suisse to First Republic, expectations for rate hikes before Wednesday could shift again. The Fed is highly unlikely to challenge the markets with a surprise move after bond volatility rose to its highest level since 2008. broader credit crunch and signs of liquidity problems will also be key concerns for policymakers. In the past week, banks looking for cash already pulled a record amount of money from the The Fed’s emergency measures, including a new funding backstop, eclipse a previous record set by the 2008 financial crisis.

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