Why Experts Believe This Will Be the Fed's Last Interest Rate Hike

•  trendspotteam

•  Mar 22 2023
 

The world market is eagerly awaiting the Fed's interest rate announcement. Had there not been recent pressure on the banking system, the Fed would have probably continued with its high rate of interest rate increases to combat inflation. Although inflation has been consistently decreasing since last June, it is still considered "sticky" by economists.

Chairman Powell's less aggressive approach to interest rates

It appears that Chairman Powell will opt for a less aggressive approach and refrain from raising the interest rate by a significant margin of 0.5%. This is likely to prevent the existing cracks in the banking system from worsening into irreparable fractures. There is a substantial probability of the Fed halting its rate hikes and analyzing the data before deciding whether to increase interest rates or not. In fact, as suggested by economists at Goldman Sachs last week, the Fed may not increase interest rates at all in light of the regional bank crisis, with approximately 82% chance of this happening. However, it is possible that high inflation levels may not allow the Fed to cease its rate hikes.

The recent crisis of confidence in the banking system can be attributed, to a significant extent, to the delayed impact of the swift monetary restriction that was implemented last year in response to the overheating of major economies. Previously, a deterioration of the same magnitude as the recent one would have prompted a rapid shift in monetary policy. However, the prevailing high inflation environment presents a challenge in making such a change, as it necessitates a substantial decline in the situation to convince central banks that inflation is under control and is likely to fall to the targeted level.

Central Banks' Actions Against Inflation and Support for Banking Systems

The recent interest rate hike by the European Central Bank (ECB) underscores the importance placed on combating inflation by central banks, provided that it does not lead to a broad financial crisis. Similarly, the ECB's emphasis on supporting the banking system if required accompanied its decision to raise interest rates by 50 basis points in the Eurozone. Similarly, the Fed has increased its balance sheet by roughly $300 billion in the past week, introduced a new loan program (BTFP) with highly favorable conditions for loans up to a year, and is anticipated to raise interest rates this week, subject to no further substantial deterioration in financial conditions.

The European Bank's priorities indicate that the Fed is likely to raise interest rates, except in the case of highly exceptional events. However, a 0.5% increase seems unlikely at present, and an increase of 0.25% to a range of 4.75%-5% is anticipated instead. The possibility of a 1% reduction in interest rates over the remaining six central bank meetings this year, as perceived by the markets, is relatively low.

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

Read Next

Leading Gainers

Upgrades

Downgrades

Top Leaders

Ipo's

Dividend

Option Activity

Insiders Activity

Institutional Holdings

New Products

FDA Approvals

Agreements

Financial Reports

Log In

Sign Up

Contact Us

Terms of use

Privacy Policy