They're the working group that sets US Federal Reserve interest rates, and the short-term direction of the global economy hinges on their next decision. Their next meeting, held between March 21st and 22nd, will almost certainly include a rate hike. The question is, how big of a hike will it be, and how long will the increases continue? To answer those questions, here's a roundup of where some of the world's most influential financial players stand on the matter.
Advocates for the Fed Standing Pat
Although the prevailing wisdom holds that a rate hike this March is already in the cards, some recent economic events have pushed several analysts to revise their expectations. In recent days, Goldman Sachs, Barclays, and Wells Fargo have all made statements indicating they believe the Fed won't raise rates again at its late-March meetings. According to their analyses, the recent collapse of the Silicon Valley Bank and the seizure of Signature Bank by financial regulators shortly afterward mean the Fed will hold off on plans for further rate hikes.
They predict that the Fed will act to tame the stress caused by the turmoil in the banking sector by reversing plans for what would have been a .25 percentage point increase in the benchmark rates. The move's necessary, the analysts contend, because the market still isn't sold on the other steps taken by regulators to shore up the banking system.
Advocates for a Rate Hike
By far, the majority of market analysts still believe the Fed will go through with its hinted quarter-point rate hike at its meeting later this month. The CME group estimate of the market consensus indicates that 71.1% of the market still expects that increase at the time of this writing. The analysts at Bank of America, Citigroup, and Kansai Tokushima Management are among that majority group, with the latter having recently restated their view that the Fed would continue its increases until reaching a terminal rate of 6%.
That prognostication has to do with the US Consumer Price Index—an indicator of overall inflation—dropping to 6% in February. That indicates the fact that inflation within the Us economy continues to cool. However, the figure represented less than a half-percentage point drop from the previous month. In other words, the prior months' interest rate hikes haven't slowed inflation anywhere near as fast as the Fed would like. Therefore, it's still logical to expect that the March Fed meeting will still produce another rate increase as the Fed tries to bring inflation back down to the 2% target it typically references as its goal.
Advocates for a Rate Cut
Not everyone believes that the Fed will increase or keep rates stable. There's even an outlier opinion from Nomura Securities that predicts that the Fed will go the opposite way, cutting the rate by a quarter point instead. They also expect that the Fed will end its quantitative tightening efforts for the time being, too.
It's an opinion not shared by very many analysts. However, it's a view shared by at least a portion of the bond market. Investors in that sector have been betting since late last year that the Fed would have to cut rates at least twice before the end of 2023. That sentiment existed long before the present banking crisis. In a way, it seems that Nomura's taking it and adding present conditions into the mix to arrive at its conclusion.
The Takeaways
As of right now, the vast majority of financial analysts still expect a quarter-point rate increase to come out of the FOMC meeting later this month. However, it's not a unanimous opinion. Some heavyweights are starting to come down on the side of a pause in rate hikes. And there's still sufficient time before the FOMC meeting for more analysts to join them. However, there's still little reason to believe that the Fed will stand pat and even less reason to believe that there's a rate cut in the offing.
And as far as where the rate hikes will eventually end, there aren't many analysts willing to stand by a hard number. However, the few that do still expect the terminal rate to end up at 6%, with some forecasting numbers just slightly below that. With inflation still showing no signs of easing to a point where the Fed feels comfortable with it, there's every reason to believe that figure makes sense.
The pound was down as much as 0.5% against the dollar to $1.2290 after it reached a one-week high of $1.2405 just a day earlier.
The dollar index was up 0.23%, with the dollar gaining against the Japanese yen after the Bank of Japan chose to keep its monetary policy unchanged. Meanwhile, against the euro, the pound sterling traded flat at 85.46 pence.
On Thursday, the pound had gained 1.4% against the dollar thanks to the Bank of England’s 0.25% interest rate increase. The rise caught some investors by surprise. Many had expected a more aggressive move by the UK’s central bank amid soaring inflation in the country.
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