With the Federal Open Market Committee meeting on Wednesday and the recent financial problems facing the US banking system, White House press secretary Karine Jean-Pierre said President Joe Biden has “confidence ” in Federal Reserve Chairman Jerome Powell. Meanwhile, according to CME Group’s Fedwatch tool, the target rate probability suggests the Fed will raise the federal funds rate by 25 basis points (bps) this week. There is also a 26.9% chance that the US central bank will not raise rates this month.
Laser Market Focused on Next Fed Meeting; Biden administration trusts Powell’s leadership
It’s been a tumultuous week in the US banking industry, as three major banks collapsed and the Federal Reserve announced it would fully bail out two of them. In addition, the US central bank created the Bank Term Financing Program (BTFP) to help failing banks and their depositors. In addition, the Fed lent banks $164.8 billion to strengthen liquidity and collaborated on March 19 with five other major central banks to boost US dollar liquidity.
To make matters worse, recently posted paper indicates that approximately 186 US banks are dealing with the same problems as Silicon Valley Bank, and shares of First Republic Bank plunged on March 20, losing more than 40% of their value in a single day. Meanwhile, on March 22, the Federal Open Market Committee (FOMC) and Fed Chairman Jerome Powell will determine the fate of the federal funds rate.
Prior to the fallout from the banking industry, the US central bank had been raising the benchmark rate rapidly every month since last year, following significant monetary easing in response to the Covid-19 pandemic, which it caused the institution to keep the suppressed fees at zero. When inflation began to soar, Fed members, including Chairman Powell, referred to it as “transient” and predicted that it would not last.
However, the Fed’s rapid monetary tightening in response to inflation has caused significant problems with long-duration Treasury notes. During the White House Press conference On Monday, press secretary Karine Jean-Pierre was asked about Chairman Biden’s view of the Fed chair’s leadership and whether Powell could be replaced as Fed chief. “Not at all. The chair has trust in Jerome Powell,” Jean-Pierre said.
Eight days earlier, on March 13, President Biden had assured Americans that the American banking system was safe. “Americans can rest assured that our banking system is safe,” he said. saying. “Your deposits are safe. Let me also assure you that we will not stop here. We will do whatever is necessary,” added the US president.
Also, market strategists and economists are curious about the Fed’s plans for Wednesday, with some speculating that the central bank will dovish. For example, last week, Goldman Sachs chief economist Jan Hatzius reviewed the bank’s US federal funds rate forecast and stated that he does not expect a hike on Wednesday.
Other market analysts anticipate that the Fed will raise the rate by 25 basis points (bps) this week. At the time of writing, CME Group’s Fedwatch tool indicates a 73.1% chance which will cause the rate increase to 25bps. The Fedwatch tool also indicates that 26.9% of analysts do not foresee rate hikes this month.
What do you think the Fed’s decision will be this coming Wednesday? Share your thoughts on this topic in the comments section below.
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