Goldman Sachs' analysts Sunday said they no longer expect the U.S. Federal Reserve to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March, in light of the recent stress in the banking sector.
Goldman previously expected a 25-basis-point hike in March.
In fact, most Wall Street banks expect the U.S. Federal Reserve to hike the benchmark interest rate by 25 basis points at the end of its two-day meeting on Wednesday, while money markets are leaning toward a pause as worries about a global banking crisis mount.
In a quick reversal of expectations, money markets are pricing in a near 60% chance of a pause following 450 basis points of hike since last March. That followed fears of stress on the banking system from the collapse of two mid-sized U.S. lenders this month.
On Sunday, a Swiss-backed takeover of Credit Suisse by peer UBS helped calmed some fears of a contagion, but uncertainties remain over the ramifications of the deal. A majority of economists in a Reuters poll published last week had also forecast a 25 bps hike.
U.S. regulators on Sunday said the failed Silicon Valley Bank's (SIVB.O) customers will have access to all their deposits starting Monday and regulators set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
Goldman analysts said they expected the measures taken by the regulators to provide substantial liquidity to banks facing deposit outflows and to improve confidence among depositors.
Goldman left unchanged its expectations for 25-basis-point hikes in May, June, and July, but said it saw considerable uncertainty about the rate hike path beyond March.
The bank said it now expected a terminal rate of 5.25%-5.5%.
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