Goldman Sachs no longer expects the Fed to raise rates in March

  • “In light of the pressure on the banking system, we do not expect the FOMC to offer a rate hike at its next meeting on March 22,” Goldman economist John Hatchius said in a note on Sunday.
  • The firm expects the latest measures to “provide substantial liquidity to banks facing deposit outflows” and boost confidence among depositors.

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Goldman Sachs did not see a case for the Federal Reserve to offer an interest rate hike at its meeting next week, citing “recent stress” in the financial sector.

Earlier on Sunday, US regulators announced measures to curb contagion fears following the collapse of Silicon Valley Bank. Regulators have also shut down Signature Bank.

“In light of the pressure on the banking system, we do not expect the FOMC to offer a rate hike at its next meeting on March 22,” Goldman economist John Hatchius said in a note on Sunday.

The company had earlier expected the Federal Reserve to raise interest rates by 25 basis points. Last month, the Federal Open Market Committee raised the federal funds rate by a quarter percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.

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Goldman Sachs economists said the package of relief measures announced on Sunday would halt similar moves taken during the 2008 financial crisis. The Treasury designated SVB and Signature as systematic risks, while the central bank created a new bank-term financing program to back companies affected by market volatility following the SVB failure.

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“Although these two measures ended the FDIC guarantee of uninsured accounts implemented in 2008, they are likely to boost confidence among depositors,” they wrote.

“Given the actions announced today, we do not expect near-term actions in Congress to provide assurances,” the economists wrote, adding that they expect the latest actions to “provide substantial liquidity to banks facing deposit outflows.”

Goldman Sachs said it expects to see 25 basis point hikes in May, June and July and reiterated its terminal rate expectation of 5.25% to 5.5%.

— CNBC’s Michael Bloom and Jeff Cox contributed to this post

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