- “Given the stress on 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 note on Sunday.
- The company expects the latest measures to “provide more liquidity to banks facing deposit outflows” and increase depositor confidence.
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Goldman Sachs no longer sees a case for the Federal Reserve to give a rate hike at its meeting next week, citing “new stress” in the financial sector.
On Sunday, US regulators announced measures to curb fears of contagion following the collapse of Silicon Valley Bank. Regulators also closed Signature Bank, citing systemic risk.
“Given the stress on 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 note on Sunday.
The company previously expected the Federal Reserve to raise rates by 25 basis points. Last month, the rate-setting Federal Open Market Committee raised the federal funds rate by a quarter percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.
Economists at Goldman Sachs said the package of relief measures announced on Sunday stopped the same moves made during the financial crisis in 2008. The Treasury designated SVB and Signature as systemic risks, while the Fed created a new Bank Term Funding Program to backstop institutions hit by market instability after the SVB failure.
“Both of these measures are likely to increase depositor confidence, although they will not stop an FDIC guarantee of uninsured accounts as enacted in 2008,” they wrote.
“Given the actions announced today, we do not expect imminent actions by Congress to provide guarantees,” the economists wrote, adding that they expect the latest measures to “provide more liquidity to the bank dealing with deposit flows.”
Goldman Sachs added that they still expect to see 25 basis point increases in May, June and July, reiterating their expected terminal rate of 5.25% to 5.5%.
– CNBC’s Michael Bloom, Jeff Cox contributed to this post