The United States Federal Reserve (Fed) will consider for two days whether to pause its interest rate hikes amid uncertainty in the banking sector that has generated the bankruptcy of Silicon Valley Bank (SVB) and Signature Bank.
If they rise, it would be the ninth time it has done so since March of last year, when the US central bank began increase the official interest rate with the aim of putting a stop to runaway inflation.
According to the specialized media MarketWatchthe market-based probabilities that the Fed raises 0.25 points the types are around 70%, while those that leave them as they are almost reach 30%.
Many experts believe that the body should pause its increases, and the Goldman Sachs group expects regulators to heed the warnings: this Monday, in a note to its clients, the group predicted that the Fed will pause its increases as “markets do not seem convinced” of the strength of the Bank System.
However, members of the central banksuch as New York Fed President John Williams, have warned against the dangers of using monetary policy to mitigate financial instability.
“The monetary politics shouldn’t try to be a jack of all trades and master of none,” Williams said during a speech last November, picked up by The Wall Street Journal.
With everything, regulators arrive for their two-day meeting – which begins this Tuesday and will lead to the Fed rate announcement on Wednesday – with inflation still well above its 2% target and a robust labor market.
In February, inflation in the United States stood at 6% year-on-year, its lowest rate since September 2021, after falling four tenths compared to January.
Two weeks ago, the question experts were asking was whether the Fed would raise interest rates by 0.25 or 0.5 points, but that all changed with the collapse of the Silicon Valley Bank and Signature Bank, whose financial situation had worsened as a result of the bank’s monetary policy.
As a result of the crisis, the main economic leaders of the country, and in particular the Treasury Secretary Janet Yellenand Fed Chairman Jerome Powell have tried to reassure citizens and markets that the situation will not lead to a financial crisis.
The US central bank, in fact, has launched a new fund for banks that need insure deposits of its clients have the money to do so, and it has increased the frequency with which it offers foreign exchange operations to ensure that there are enough dollars available in the financial system.
In addition, the major banks in the United States came together last week to bail out the First Republic Bank with 30,000 million dollars, which threatened to go the way of the SVB and the SignatureBank after a sharp fall in the value of its shares.
Panic also crossed the pond and almost finished off the Swiss bank Credit Suissewhich finally had to be acquired this weekend by its competitor UBS after the crisis of confidence that was sinking its price on the market.
The patches seem to have had an effect: this Monday, Wall Street closed in the green and the Dow Jones de Industriales, its main indicator, rose 1.20%, when the banking turmoil seems to have calmed down.
The fed last decided to raise rates in February. It was an increase of 0.25 points that placed them in a range of 4.5% and 4.75%, the highest figure since September 2007.