New Fed forecast from Nomura – Bloomberg HT
The job of the Fed, which will announce its interest rate decision on March 22 after the collapse of three banks in the USA within a week, and is likely to increase the interest rate increase from 25 basis points to 50 basis points at this meeting, depending on the data, has also become more difficult.
The collapse of the SVB was an example of the cost of the Fed’s tight monetary policy. The bank had invested heavily in long-term bonds, but the value of these bonds eroded as interest rates rose.
During this time, as the Fed increased interest rates, the bank’s borrowing costs rose.
Goldman Sachs announced that it no longer expects a rate hike from the Fed for this month. Economists led by Jan Hatzius pointed out that there are uncertainties about the coming months due to the stress experienced in the banking system.
How did other banks comment?
JPMorgan Chase & Co. “While the Fed wants tighter financial conditions to limit aggregate demand, it doesn’t want it to get out of hand quickly,” said US Chief Economist Michael Feroli.
JPMorgan maintained its forecast that the Fed would raise rates by a quarter point in March. “The market response and what’s happening in the banking industry will make a strong argument for a 25 basis point increase instead of 50,” said Stephen Stanley, US Chief Economist at Santander US Capital Markets. Deutsche Bank Securities US Chief Economist Matthew Luzzetti predicted that the SVB’s sinking was causing financial conditions to tighten and if it continued, this could allow the Fed to take less aggressive steps.
Bloomberg Economist Stuart Paul, on the other hand, is of the opinion that if the February CPI data to be released on Tuesday exceeds the expectations, the CVB crisis will not discourage the Fed from increasing by 50 basis points.
Fed Chairman Jerome Powell announced last week that they were ready to increase the size of rate hikes if needed, and that it would depend on the data. With the strong employment data, it was priced in that the Fed, which had increased interest rates by 25 basis points at the last meeting, could return to 50 basis points steps again. However, with the collapse of the SVB, prices for 50 basis points fell below 50 percent on Friday.