Goldman Sachs Now Expects No Rate Hike in March Due to Stress in US Banking System – Goldman Sachs, a prominent global investment bank, has adjusted its forecast for the Federal Open Market Committee (FOMC) meeting in March regarding interest rate hikes.
According to a communication sent to clients, the bank’s economists, headed by chief economist Jan Hatzius, stated that due to banking system strains, they no longer anticipate the FOMC to implement a rate hike during its next meeting on March 22. Last month, the FOMC raised the federal funds rate by 25 basis points, bringing it to a target range of 4.5% to 4.75%, which is the highest it has been since October 2007.
Shortly after the Treasury Department, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) declared measures to assist depositors of two failed banks, Goldman Sachs modified its forecast. Silicon Valley Bank was closed by regulators on Friday, followed by the shutdown of Signature Bank on Sunday.
Furthermore, on Sunday, the Federal Reserve Board announced that qualified depository institutions will be given access to supplementary funding. Goldman Sachs’ economists provided their perspective on the Treasury Department’s classification of failed Silicon Valley Bank and Signature Bank as systemic risks and the Federal Reserve’s launch of a new Bank Term Funding Program to assist institutions impacted by subsequent market instability.
The economists explained that while both of these measures are likely to boost confidence among depositors, they fall short of an FDIC guarantee of uninsured accounts, which was introduced in 2008. The economists further mentioned that they still anticipate the Fed to increase interest rates by 25 basis points in May, June, and July, with a terminal rate projection of 5.25% to 5.5%.