Fed says rate hikes are coming to an end, and Silicon Valley Banks are alone
Time： 2023-03-31 11:37
1. The March meeting of the Federal Reserve decided to raise interest rates by 25 basis points
Last week, the Federal Reserve held its March meeting and announced it would raise its benchmark rate by 25 basis points to between 4.75% and 5.00%.
The meeting was particularly important because it was the Fed's first formal response since the collapse of Silicon Valley Bank and Signature Bank. The shock waves caused by the failure of Silicon Valley banks are still spreading in the banking sector, and the market is clearly escalating fears of a recession. Although the Federal Reserve has taken action, the March rate hike meeting is seen by the market as an important catalyst and direction. Whether it will raise rates by 50 basis points, 25 basis points or not at all says a lot about the Fed's attitude to a bust like the Silicon Valley Bank.
2. Why is the March meeting worth analyzing?
Here's what happened in the financial markets:
Based on the US inflation and employment data released in early March, the Fed's path to raising interest rates was very clear, almost a 50 basis point hike, as these data exceeded expectations and had to be dampened by aggressive rate hikes. However, the emergence of the bank failure crisis in mid-March changed the Fed's assessment of how hard to raise rates. But by how much, the market is divided.
The shock waves from Silicon Valley Bank's collapse are still being felt, especially since the crisis began with the Fed's aggressive rate hikes (see "Dominoes" in the previous article). With Fed officials under such pressure to deliver on such an important monetary policy decision, it is certain that the overall policy stance turned more dovish in March.
Half think the Fed will not raise rates at all, first because the fallout from the bankruptcy is so bad that the March meeting needs to contain sudden financial stability risks and give markets a good idea of what to expect. Second, US inflation, though still high, is on a downward trend and heading in the right direction. Delaying a rate rise by two months to May would not have a significant impact on the inflation outlook.
The other half think the Fed will meet in the middle and raise rates by 25 basis points, because the Fed's ultimate goal is to fight inflation by raising rates. It can't be so quick to directly push the bottom line so low, because the Fed probably didn't see the failure of Silicon Valley banks as a transmitted risk at all.
3. The Fed is finally nearing the finish line, saying the Silicon Valley Bank failure was a one-off.
According to the data presented at the meeting, the Fed will raise interest rates only once more this year, by 25 basis points, and the end is near. America will end hyperinflation by 2023.
Fed Chairman Jerome Powell clarified his stance on Silicon Valley Bank in a later press conference, stressing that the failure of Silicon Valley Bank was an isolated case and that there was no systemic flaw in the U.S. banking system.
The Fed also reiterated its determination to fight inflation, saying that prices for services, particularly housing, have not made much progress. Inflation risks still dominate in the short term, which is why the Federal Reserve's decision to raise interest rates in March was so calm in the face of so much turmoil.