In the US, the bankruptcy of Silicon Valley Bank (SVB) and then Signature Bank scared the markets, whose panels were painted red. The actions of banks, in particular, are affected by the fear of contagion. And one of the features of this tsunami is that no one expected it. And another that caught the European Central Bank (ECB) and the US Federal Reserve in the process of raising interest rates to stem the rise in inflation. Given the new scenario, doubts arise.
Will central banks continue to increase the price of money?
This is one of the problems behind the SVB debacle, which forced the Federal Reserve to launch a special scheme mostly related to the US technology sector to recover the deposits of the organization’s customers. After this bank, New York Singular Bank also fell. And investors are starting to target other assets ahead of the Wall Street opening. In this context, there are voices that the Central Bank (Fed) will take a breather and park the 0.50 point increase it has planned. And there are doubts as to what the ECB will do until the situation changes by up to 3.5% in bank prices, which will go up a new half-point. Now doubts arise.
Why can interest rate plans change?
Goldman Sachs said it sees no reason for the Fed to raise interest rates again at its meeting next week, given “recent tensions in the financial sector.” “In light of the tension in the banking system, we no longer expect the FOMC (Federal Open Market Committee) to raise rates at its next meeting on March 22,” said the bank, which had previously expected a 25 basis point increase. point. Increases in interest rates have consequences for the value of public debt: The interest rate on bonds also rises, but this automatically causes the property price to fall. Therefore, banks may have assets (public debt securities) that have lost a significant portion of their value compared to the price paid to them. A new rate hike by the Fed or ECB will only accentuate this trend at a very sensitive moment, so experts are starting to predict that central banks will curb their announced rate hikes until at least 2019. panic subsides.
What could the Fed’s plans be in the US?
Many analysts predict that the Fed may step back from accelerating rate hikes. It is even assumed that there will be no more 0.50 points and that it can be limited to 0.25% or even left for later. A key element the Fed will take into account will be the development of inflation in February, which will be known this Tuesday. Overall, analysts expect a moderation of up to 6% YoY in the consumer price index and up to 5.5% in the case of the core CPI, which is the most structural excluding energy and food prices. In the eurozone, where the ECB will decide on Thursday, inflation fell to 8.5% in February compared to 8.6% in January, but remains very high.