Goldman Sachs economists expect the Fed to halt future rate hikes due to “stress in the banking system.”

Goldman Sachs (NYSE: GS) believes the Fed will not hike rates as planned due to the current macroeconomic conditions. In a memo issued Monday morning, banking giant economist David Mericle pointed to the ongoing banking crisis as a deterrent. According to Mericle, the recent collapse of Silicon Valley Bank (SVB) and signatories has made rate hikes intolerable. As a result, Goldman economists expect the Fed to pause planned rate hikes until things get worse.

Ahead of this week’s Federal Open Market Committee (FOMC) accounting meeting, Mericle explained:

“We expect the FOMC to suspend its March meeting this week as the banking system is under stress. It doesn’t seem convinced enough that efforts to help smaller banks will be enough.”

Mericle also noted that the urgency of raising rates is no longer wavering, adding to the recent bank turmoil. The reason is that short-term inflation expectations have fallen sharply and long-term inflation expectations have remained stable.

But Mericle was quick to admit that the link between a 25 basis point rate hike and future inflation remains “very tenuous”. Therefore, the Federal Reserve can quickly resume its campaign of continuing rate hikes to stem inflation. As it stands, the top US bank expects him to rise by a quarter of a percentage point from May to July.

Goldman Economists Predictions on Fed Rate Hike Come Amid Credit Suisse UBS Bailout

As of last Friday, most Wall Street economists and analysts expected another 25 basis points of rate hikes this week. The consensus was that the Fed would go ahead with its plan to fight inflation even though the financial sector was already in a very precarious position. But Mericle’s latest stance on the central bank’s next fiscal move is starting to gain momentum within his circles. Moreover, his predictive valuation is also a welcome relief to an already reeling banking industry.

Executives at the Virginia Bankers Association meeting in early January worried the Fed’s actions made it harder to compete for deposits. Addressing the issue, Richmond Fed President Thomas Barkin said the pressure from an impending rate hike was widespread and palpable.

The recent failures of at least three prominent US banks have sent shockwaves through the global financial sector. The contagion spread to Europe and brought Swiss banking giant Credit Suisse to the brink of bankruptcy. However, Credit Suisse recently secured emergency relief from crosstown rival UBS.

UBS chairman Colm Kelleher said a Credit Suisse deal would be very attractive to UBS due to the size of the struggling bank. According to him, these assets will further serve UBS’s agenda. as UBS Chairman put that:

“We have built a deal that preserves residual value in the business while limiting downside risks. It strengthens UBS’s strategy to grow the business.”

However, Mr Kelleher also acknowledged that the benefit to Credit Suisse was limited to the “rescue” nature of the transaction.


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Toru Miho

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to explain the cryptocurrency story down to the basics so that anyone can understand it without much background knowledge. Krypto When he’s not heavily involved in storylines, Tolu enjoys music, loves to sing, and is also an avid movie buff.

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