Source: Wall Street News
Author: Han Xuyang
Goldman Sachs believes that although this means the fight against inflation is suspended, the inflation issue does not seem as urgent as last summer, because short-term inflation expectations have dropped drastically, and long-term inflation expectations have remained stable.
On Monday, March 20, on the eve of this week's Federal Reserve FOMC meeting, Goldman Sachs said that due to pressure from the banking system, the Federal Reserve is not expected to raise interest rates this week.
Goldman Sachs economists wrote in a report:
We expect the FOMC will suspend interest rate hikes at this week's meeting due to pressure on the banking system.
Although policymakers have taken positive steps to bolster the financial system, the market doesn't seem fully convinced that these efforts to support small and medium-sized banks are sufficient.
At 14:00 EST on March 22, the Federal Reserve will announce interest rate decisions and a summary of economic expectations. Although previous turmoil in the financial industry has disrupted global markets, economists agree that the Federal Reserve should not delay action to fight inflation. As of last Friday, most Wall Street economists still expect the Federal Reserve to raise interest rates by 25 basis points this week.
Market pricing shows that the probability of investors predicting that the Federal Reserve will raise interest rates by 25 basis points this week is currently 64.2%, and the probability of not raising interest rates is 35.8%.
However, Goldman Sachs said in the report,Not raising interest rates means putting a stop to the fight against inflation, but that shouldn't be a problem. In fact, the inflation issue now seems less urgent than last summer, because short-term inflation expectations have declined sharply, and long-term inflation expectations have remained stable.
Although US regulators and the Federal Reserve have introduced measures to protect the troubled Bank of Silicon Valley and provided the institution with new financing tools, Bank First Republic plummeted last week, which led to a succession of regional bank stock prices. Over the weekend, in coordination with the Swiss government, UBS announced the acquisition of Credit Suisse to stop the bank's crisis from spreading.
The Federal Reserve's current target interest rate range is 4.5% to 4.75%. The Federal Reserve just raised interest rates by 25 basis points last month before pressure from the banking sector became apparent. Goldman Sachs expectsAfter suspending interest rate hikes this time, the Federal Reserve will resume raising interest rates by 25 basis points at its next meeting in May, and raise interest rates by another 25 basis points in June and July.
Editor/Somer