The US Fed’s work has become even more challenging this time around due to the global bank crisis that is still developing. An earlier rate increase than anticipated could worsen the situation for the banking industry not only in Europe but also in the US. About 11.30 IST tonight, a decision on the main interest rates is anticipated.
Will the US Federal Reserve maintain current interest rates or boost them by 25 basis points?
There were concerns that the Fed would keep aggressively raising interest rates while the banking crises persisted. Yet that impression is quickly shifting. “Unexpectedly, the sequence of events has altered the view for the Fed’s interest rate path. The likelihood that the US Fed Fund Rate will peak at 5.5–5.75% and remain there for the entirety of CY23 has changed from early predictions to a decrease of about 100 basis points by CY23’s end commencing in June 23. The dot plot, which will be released following the Federal Open Market Committee (FOMC) meeting on March 22, has increased in significance as a result “In a report, HDFC Mutual Fund stated.
For the past few days, this has caused a small bounce in markets all across the world. Do not forget that rising interest rates are bad for stocks and commodities like gold. There is pressure on stocks and gold as a result of investors shifting their capital from riskier government bonds or high interest-bearing instruments to equities and commodities.
Almost three-quarters of respondents (72%) expect the Fed to hike by one-quarter of a percentage point, according to the CNBC survey, but only 52% say the Fed should hike. On Tuesday morning, the CME FedWatch finds the market pushing up bets on a 25 basis point hike to over 81% (it had been 74% on Monday).
What’s also important would be to see the future rate hikes and whether there is likely to be a pause in the immediate future. The Fed commentary suggests that there hasn’t been enough evidence in the data to suggest the fight against inflation has progressed to the point where it should have confidence that credit tightening can do the disinflation job without another rate hike.
In India markets are looking in anticipation and are also cautious. “We advise investors to remain cautious, as markets are likely to remain volatile ahead of Fed’s meeting outcome on Wednesday late evening. US Fed’s commentary amidst the ongoing financial crisis would be of key importance and can provide some direction to the markets, says Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.