Right from Signature Bank to Silicon Valley Bank and Silvergate, a host of prominent financial institutions have become casualties of the ongoing banking turmoil. The impact of the same on the macro-markets has been widespread. Right from stock indices tumbling to cryptocurrency prices dropping, assets from all niches outrightly reacted to the same.
Given the current wobbly environment, regulators have come to the rescue. The customers of Silicon Valley Bank and Signature will be bailed out by the U.S. Treasury, Federal Reserve, and Financial Deposit Insurance Corporation. In fact, all depositors will have access to their funds on Monday, March 13. The move has been appreciated by people from the ecosystem and asset prices have seemingly stepped back onto the recovery track for now.
Owing to the “recent stress” in the financial sector, Goldman Sachs now doesn’t see a reason for the Federal Reserve to deliver a rate hike at its meeting next week. In a recent note, Goldman Sachs Economist, Jan Hatzius, said,
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22.”
If that indeed happens, then, it’d mark a “historic” strategy change, according to community members like Anthony Pompliano.
Also Read: Coinbase Holds $240M in Signature Bank: Expects to “Fully Recover” Funds
That being said, it is worth noting that the firm earlier expected the Fed to hike rates by 25 basis points. Last month, the FOMC notched up the interest rate by a quarter percentage point to a target range of 4.5% to 4.75%.
Also Read: Federal Reserve Raises Interest Rates a Quarter of a Point
Goldman Sachs expects rate hikes in May, June, July
According to CNBC, the economists at Goldman Sachs opined that the package of relief measures announced on Sunday, March 12, “stopped short” of similar moves made during the 2008 financial crisis. However, they pointed out that the measures taken this time will likely “increase confidence” among investors. The economists further wrote,
“Given the actions announced today, we do not expect near-term actions in Congress to provide guarantees.”
Furthermore, they added that they expect the latest measures to “provide substantial liquidity to banks facing deposit outflows.”
However, not everyone is on the same page. Mohammed Apabhai, Head of Asia Trading Strategy at Citigroup Global Markets, recently opined in a Bloomberg interview that the SVB episode will not stop the Fed from hiking. Elaborating on the same, he said,
“In my view, no. The reason why is because we’ve been doing a lot of work, as you can imagine, about whether there is any systemic risk that there is coming through here. Doesn’t really seem like it is.”
He did go on to acknowledge that there are a few banks that the markets are concerned about now, but the bigger ones, according to him, are all “solid,” at least for now.
Leaving aside March, Goldman Sachs economists added that they still anticipate 25 basis point hikes in May, June, and July.