Will the Fed take a pause?
Team Veye | 13-Mar-2023
Early March, Fed’s only concern was to tame the inflation and to achieve this, it had been resorting to tighten the liquidity by way of hiking the interest rate.
And then happened the Silicon Valley Bank collapse. With a broader financial crisis looming large, U.S. authorities, set in motion, emergency measures to shore up confidence in the banking system.
Till this time, Federal Reserve was almost certain to keep going forward with its rate-hiking campaign and approve the ninth consecutive rate increase at its March 21-22 Federal Open Market Committee (FOMC) meeting. Fed Chair Jerome Powell was said to be even contemplating a half-point hike.
Although economists view the current weakness nowhere near as bad as the 2008 crisis, the question is how much downturn it could cause to the global economy. Coming at a time when there is more uncertainty and declining confidence in the banking system, some steps could be initiated to infuse positivity in the entire conglomerate.
The data showing that U.S. spending at retailers fell by more than expected last month may take some pressure off inflation in the near term for Fed to take some quick steps.
Extraordinary situations call for extraordinary measures. While the federal government does not want to directly bail out the banks, it is taking unconventional measures to help banks, with the possible entry of the legendary investor Warren Buffett and his likely investment in the regional banks.
The markets are known to change expectations faster than a flip. It remains to be seen whether Fed drives the market moves or it takes note of market moves. And the consensus remains of a balancing act from Fed with just a 25 basis point rate hike or a complete pause this time.
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