A Goldman Sachs economist anticipates the Fed would suspend its next rate hike due to “stress in the banking system.”
Goldman Sachs (NYSE: GS) believes that the US Federal Reserve would not raise rates as planned due to the prevailing macroeconomic circumstances. In a note published Monday morning, the banking giant’s economist, David Mericle, pointed to the ongoing banking crisis as a deterrent. According to Mericle, the recent collapses of Silicon Valley Bank (SVB) and Signature Bank make any rate hike unbearable. As a result, the Goldman economist predicts that the Fed would hold off on its planned rate hike until things calm down.
Speaking ahead of this week’s fiscal Federal Open Market Committee (FOMC) meeting, Mericle explained:
“We expect the FOMC to pause its March meeting this week due to stress in the banking system. While policymakers have responded aggressively to shore up the financial system, markets appear not to be fully convinced that efforts to support small and midsize banks will be enough.
Mericle also noted that, in addition to the recent bank turmoil, the urgency to raise rates is no longer prevalent. According to him, the inflation outlook already looks much better than last summer. The reason is a sharp drop in short-term inflation expectations, while long-term inflation expectations also remain anchored.
However, Mericle was quick to acknowledge that the link between a 25 basis point increase and future inflation remains “very tenuous.” Therefore, the Federal Reserve can quickly resume its campaign to continue raising rates to curb inflation. As it stands, the major US bank is still expecting quarter-point gains from May through July.
Goldman Economist’s Fed rate hike prediction comes amid UBS bailout of Credit Suisse
As of last Friday, most Wall Street economists and analysts anticipated another 25 basis point rate hike this week. The consensus was that the Fed would push ahead with its anti-inflation scheme despite an already heavily compromised financial sector. However, Mericle’s latest stance on the central bank’s next fiscal move is beginning to gain traction within his circles. Furthermore, its predictive assessment should also be a welcome relief for an already hectic banking space.
Executives at an early January meeting of the Virginia Bankers Association previously worried that the Fed’s actions would make competition for deposits more difficult. Touching on the subject, Richmond Fed President Thomas Barkin said the pressure from impending rate hikes was widespread and palpable.
The recent collapse of at least three prominent banks in the US has shocked the global financial sector. This contagion has also spread to Europe, with the Swiss banking giant Credit Suisse on the brink of bankruptcy. However, Credit Suisse recently got an emergency bailout from rival UBS.
UBS Chairman Colm Kelleher said the Credit Suisse acquisition is very attractive to UBS because of the sheer size of the embattled bank. According to him, these assets would further serve UBS’s agenda. As Chairman of UBS put he:
“We have structured a transaction that will preserve any remaining value in the business while limiting our downside exposure. The acquisition of Credit Suisse’s Swiss wealth, asset management and universal banking capabilities will enhance UBS’s strategy of growing its businesses with little capital.”
However, Kelleher also conceded that Credit Suisse’s advantage is limited to the “bailout” nature of the deal.
next
Tolu is a Lagos-based blockchain and cryptocurrency enthusiast. He likes to demystify the crypto stories down to the basics so that anyone anywhere can understand them without too much prior knowledge. When he’s not up to his neck in crypto-stories, Tolu likes music, loves to sing, and is an avid movie buff.
Subscribe to our telegram channel.
Join