Goldman Sachs has revised its U.S. interest rate forecast due to “stress in the banking system.” The global investment bank no longer expects the Federal Reserve to raise interest rates at its Federal Open Market Committee (FOMC) meeting in March after the central bank announced measures to rescue depositors of failed Silicon Valley Bank and Signature Bank.
Goldman Sachs Revises Rate Hike Forecast
Global investment bank Goldman Sachs has revised its interest rate hike prediction for the upcoming Federal Open Market Committee (FOMC) meeting in March. In a note to clients on Sunday, the bank’s economists, led by its chief economist Jan Hatzius, detailed:
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.
Last month, the FOMC increased the federal funds rate by 25 basis points to a target range of 4.5% to 4.75%, the highest since October 2007.
Goldman revised its forecast shortly after the Treasury Department, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) announced rescue measures for depositors of two failed banks. Regulators shut down Silicon Valley Bank on Friday and Signature Bank on Sunday. In addition, the Federal Reserve Board said Sunday that additional funding will be made available to eligible depository institutions.
Commenting on the Treasury Department’s decision to designate failed Silicon Valley Bank and Signature Bank as systemic risks and the Federal Reserve’s establishment of a new Bank Term Funding Program to support institutions affected by subsequent market instability, the Goldman Sachs economists explained:
Both of these steps are likely to increase confidence among depositors, though they stop short of an FDIC guarantee of uninsured accounts as was implemented in 2008.
The economists further noted that they still expect the Fed to raise interest rates by 25 basis points in May, June, and July, with a terminal rate expectation of 5.25% to 5.5%.
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