The Federal Reserve meets this week to decide its next move on interest rates as its year-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 evoke memories of the 2008 financial crisis. Even before Wednesday’s central bank policy decision, investors will be looking for more signs of stress in the global banking industry and additional steps from regulators to provide relief. This is a special newsletter we send to our subscribers Five things And New Economy Daily To give an overview of what we’re watching before the meeting.
There is no shortage of views among investors as expectations shift between a quarter-point Fed hike and pause. The only certainty is that the Fed will refrain from raising half a point higher that Chairman Jerome Powell had put on the table before financial stability concerns arose. A survey of economists by Bloomberg News shows that the average demand for a quarter point hike would take the Fed’s policy rate to the 4.75%-5% range and the bond market has about a 65% chance of that possibility. At the height of concerns about banking stresses last week, traders slashed the odds of a quarter-point rally to less than half, while some banks, including Goldman Sachs and Barclays, changed their price calls and now don’t expect a rate hike.
With developments changing rapidly, amid efforts to shore up distressed lenders from Credit Suisse to First Republic, expectations for a rate hike may change again before Wednesday. The Fed is unlikely to challenge the markets with a surprise move after bond volatility rose to the highest level since 2008. Fears of a The broader credit crunch and signs of liquidity pressures will also be a top concern for policymakers. Last week, banks scrambling for cash already withdrew a record amount of money from… The Fed’s emergency facilities, including new funding support, surpassed the previous record set in the 2008 financial crisis.
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