5 Ways US Bank Failures Could Impact March 2023 Fed Rate Decision

The Federal Reserve meets this week to decide on its next interest rate move, as its year-long inflation battle collides with a recession in the financial sector. The Fed’s next move is being watched closely, as recent bank failures bring back memories of the 2008 financial crisis. Even before the central bank’s policy decision on Wednesday, investors are expecting more signs of stress from the global banking industry and additional steps from regulators to get relief. This is a special edition newsletter that we send to subscribers Five things and New Economy Daily to give an overview of what we will be looking at before the meeting.

There is no shortage of views among investors, with expectations varying between a quarter-point Fed hike and a pause. The only certainty is that the Fed will refrain from the larger half-point hike that Chairman Jerome Powell had put on the table just before concerns about financial stability surfaced. A survey of economists by Bloomberg News shows that an average quarter-point increase will push the Fed’s key rate to between 4.75% and 5%, and bond markets are giving that about a 65% chance. At the height of bank stress concerns last week, investors slashed the odds of a quarter-point hike to less than half, while some banks, including Goldman Sachs and Barclays, revised their rate requests and now expect no rate hike.

With developments moving quickly to support struggling lenders from Credit Suisse to First Republic, rate hike expectations could change again before Wednesday. The Fed is highly unlikely to challenge the market with a surprise move after bond volatility hit its highest level since 2008. a wider credit crunch and signs of a liquidity crunch are also top concerns for policymakers. During the past week, banks looking for cash already withdrew a record amount of funds The Fed’s emergency services, including the new funding bailout, eclipse the previous record set by the 2008 financial crisis.

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