Goldman Sachs no longer expects the Fed to hike rates in March

Goldman Sachs sees no further argument for the Federal Reserve to raise rates at its meeting next week, citing “recent stress” in the financial sector.

Earlier on Sunday, US regulators announced measures to stem contagion fears following the collapse of Silicon Valley Bank. Regulators also closed Signature Bank, citing systemic risk.

“In light of the strains in the banking system, we no longer expect the FOMC to raise rates at its next meeting on March 22,” Goldman economist Jan Hatzius said in a note. Sunday.

The firm previously expected the Federal Reserve to raise rates by 25 basis points. Last month, the Federal Open Market Committee responsible for setting rates raised the federal funds rate by a quarter of a percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.

Goldman Sachs economists said the relief package announced on Sunday comes to a halt ahead of similar measures taken during the 2008 financial crisis. The Treasury has designated SVB and Signature as systemic risks, while the Fed has created a new bank term funding program to support institutions affected by market instability following the bankruptcy of SVB.

“Both of these measures are likely to increase depositor confidence, although they stop before an FDIC guarantee of uninsured accounts, as was implemented in 2008,” they wrote.

“Given the actions announced today, we do not expect short-term action in Congress to provide reassurance,” the economists wrote, adding that they expect the latest measures “to provide substantial liquidity to banks facing deposit outflows”.

Goldman Sachs added that they still expect to see 25 basis point hikes in May, June and July, reiterating their terminal rate expectation of 5.25% to 5.5%.

– CNBC’s Michael Bloom, Jeff Cox contributed to this post