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

Goldman Sachs no longer sees reason for the Federal Reserve to hike rates at next week’s meeting, citing “recent tensions” in the financial sector.

Earlier Sunday, US regulators announced measures to stem contagion fears following the collapse of the Silicon Valley bank. Regulators also shut down Signature Bank citing systemic risk.

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“Given the stress in the banking system, we no longer expect the FOMC to come up with a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.

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

Goldman Sachs economists said the package of relief measures announced on Sunday comes short of similar measures implemented during the 2008 financial crisis. The Treasury labeled SVB and Signature as systemic risks, while the Fed launched a new Bank Term Funding Program to support institutions hit by market instability following the collapse of SVB.

“Both of these moves are likely to boost depositor confidence, although they shy away from an FDIC guarantee for uninsured accounts such as that introduced in 2008,” they wrote.

“Given the measures announced today, we do not expect that near-term measures in Congress will offer guarantees,” the economists wrote, adding that they expect the recent measures “to provide significant liquidity to banks facing deposit outflows.” become”.

Goldman Sachs added that they still expect hikes of 25 basis points in May, June and July and reiterated their final rate expectation of 5.25% to 5.5%.

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