- “Given the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.
- The firm expects the latest measures to “provide significant liquidity to banks facing deposit outflows” and boost confidence among depositors.
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Goldman Sachs no longer sees any argument for the Federal Reserve to deliver a rate hike at its meeting next week, citing “recent stress” in the financial sector.
Earlier on Sunday, US regulators announced measures to stem fears of contagion following the collapse of Silicon Valley Bank. Regulators also shut down Signature Bank, citing systemic risk.
“Given the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.
The firm had previously expected the Federal Reserve to raise interest rates by 25 basis points. Last month, the rate-setting Federal Open Market Committee raised the federal funds rate by a quarter of a percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.
Goldman Sachs economists said the package of relief measures announced Sunday stops short of similar moves made during the 2008 financial crisis. Treasury designated SVB and Signature as systemic risks, while the Fed created a new Bank Term Funding Program to shore up institutions hit by market instability after the SVB failure.
“Both of these steps are likely to boost confidence among depositors, although they stop from an FDIC guarantee for uninsured accounts that was implemented in 2008,” they wrote.
“Given the actions announced today, we do not expect near-term actions in Congress to provide assurances,” the economists wrote, adding that they expect the latest measures to “provide significant liquidity to banks facing deposit outflows.”
Goldman Sachs added that it still expects to see increases of 25 basis points in May, June and July, and reiterated its terminal rate expectation of 5.25% to 5.5%.
— CNBC’s Michael Bloom, Jeff Cox contributed to this post