Moody’s Analytics chief economist Mark Zandi thinks the Federal Reserve is unlikely to raise interest rates at its March meeting as there is a “boatload of uncertainty” around the recent bank failures.
The financial turmoil of the past few days will certainly affect monetary policy decision making when the Federal Open Market Committee meets next week, he added.
“I think they’re focused on the bank failures that roiled the banking system and markets over the last couple of days,” Zandi told CNBC’s “Street Signs Asia” on Wednesday.
“There’s a boatload of uncertainty here,” as a result the Fed will want to be cautious, he added. “I think they’re going… [to] decide not to raise interest rates at the meeting next week.”
His comments follow U.S. regulators shutting down Silicon Valley Bank on Friday and taking control of its deposits in the largest U.S. banking failure since the 2008 financial crisis — and the second-largest ever.
On Sunday, policymakers scrambled to backstop depositors at both SVB and Signature Bank, which was also shuttered, to stem the panic around contagion risks.
Inflation ‘moderating’
The Fed’s calculation on interest rates could get complicated as the U.S. economy continues to fight high inflation. The latest consumer price index data on Tuesday showed inflation rose in February, but was in line with expectations.
While inflation remains a problem for the U.S. economy, “it’s moderating” and moving in the right direction, said Zandi.
“But it is very high. I think… more rate hikes may be in order. But at this point in time, it is much more important to focus on what’s in your face — that is the potential for bigger problems in the banking system,” he explained.
Zandi isn’t alone in calling for a pause on rates hikes. On Monday, Goldman Sachs said it does not expect the Fed to hike rates this month. But the market is still pricing in for a 25 basis point hike next week, according to a CME Group estimate.
Bank downgrade
On Tuesday, Moody’s…
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