Goldman Sachs said the Federal Reserve won’t hike interest rates on Wednesday as most of Wall Street expects because of the emerging banking crisis, CNBC reported.
“We expect the FOMC to pause at its March meeting this week because of stress in the banking system,” Goldman economists wrote in a note Monday. “While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient.”
As of Friday, most economists expected the Fed to hike by a quarter percentage point this week, not wanting to delay its inflation fight despite the upheaval in the financial sector.
“This would mean taking a pause in the inflation fight, but that should not be such a problem,” the Goldman note stated. “The inflation problem actually looks less urgent now than last summer because near-term inflation expectations have fallen sharply and long-term inflation expectations have remained anchored.”
The Fed’s current target range is 4.5% to 4.75% following a quarter percentage point increase last month before the banking stress came to light.
After this pause, Goldman expects the Fed to resume hiking at its next meeting in May by a quarter percentage point and tack on two more quarter-point increases in June and July.
Markets still largely expect the central bank to hike following this week’s two-day meeting. Futures traders assigned a 65% chance of a quarter-point increase, according to CME Group calculations Monday morning.