0 or 25bps: Will Fed Continue to Save Banks in FOMC meeting?
Fed will announce March rate hike decision on Wednesday.
Until now, the market has not fully priced in the rate hike by the Fed. According to the Fed Watch Tool provided by CME, the market expectation for no rate hike versus a 25 bps is approximately 30% and 70%, respectively.
This indicates that the market is eagerly anticipating the Fed to stop raising interest rates in order to save the banks.
source: cmegroup
1. Why does Fed need to save the banks?
- Bank Run - Inevitable Consequence of Aggressive Rate Hike
Even though the Fed and large banks have temporarily solved the liquidity problems, the short-term interest rate spread squeeze in the banking business will not be fundamentally solved.
The only solution is the Fed to begin a rate-cutting cycle.
As long as Fed continues to raise interest rates and yields continue to be inverted, more banks may face crisis like $SVB Financial Group(SIVB)$ and $First Republic Bank(FRC)$ in the future.
2. Why has Fed done to save the banks?
Fed announced Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks.
BTFP, however, has greatly offset the effect of its balance sheet reduction. This project allows banks facing liquidity pressures to obtain loans from the Fed by pledging their US Treasury and MBS that generate floating losses.
Fed’s balance sheet swelled by an impressive 300 billion in a week, close to half of the total balance sheet reduction scale of $625 billion since mid-April last year.
3. Will Fed continue to save banks and announce no rate hike in March?
1) Goldman Sachs chief economist Jan Hatzius said 0 bps
In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March.
2) ECB raised interest rates by 50 bps as expected on March 16th, even as Credit Suisse faced a crisis.
3) In addition, the market generally expects a 25bps rate hike in March.
Conclusion
Market is eager to see how the Fed will choose between the mission of"resisting inflation" and the mission of"maintaining financial market stability" this Wednesday.
Do you think Fed will save banks or not?
Will Fed increase 0 or 25bps or others this Wednesday?
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🌟🌟🌟When it comes down to the crunch of whether to save the banks or quell down high inflation, I believe that the Feds will save the banks first. This is because it is of utmost importance to maintain the integrity of the US financial system. It is the bedrock of the US economic success and the US Dollar being the world's strongest currency.
I also believe that the Feds may even temporary pause the interest rate this week to give the banks some breathing space and restore some semblance of calm into a market plagued by fear and contagion by the recent bank runs.
However this is a good time to buy stocks of big US banks like JP Morgan and Bank of America as they will be more resilient with their rock solid balance sheet as they will continue to grow long term.
@Tiger_chat
If we see it this way, then Fed is near its goal to bring down inflation.
But i think Fed will not pause rates increase just yet as they always emphasis the need for inflation data to justify its action.
The effect of the banking crisis will be felt in the subsequent weeks and months. Meaning to say we could see the rates pause/smaller hike in the subsequent decision in early May 2023, but not the one happening tomorrow.
don't you agree @Viv22 @LMSunshine @KYHBKO @Tigress02 @Universe宇宙 @kungpao @wine18 @cindyft @Xian789 @MTok
@CT888 @Kiyosumi @SR050321 @Sglim73 @AnthonyVes @HelenJanet @VinkaloZendo come n join in the discussion.
Once and for all, kill inflation, cause a recession and get rid of all the weak banks.
The Feb will feel satisfied in a job well done by the end of March!! [Evil]