Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee March 7, 2023 in Washington, DC.
Win Mcnamee | Getty Images
Markets have changed their mind — again — about what they think the Federal Reserve will do next week regarding interest rates.
In a morning where more banking turmoil emerged and stocks opened sharply lower on Wall Street, traders shifted pricing to indicate that Fed may hold the line when it meets March 21-22.
The probability for no rate hike shot up to as high as 65%, according to CME Group data Wednesday morning. Trading was volatile, though, and the latest moves suggested nearly a 50-50 split between no rate hike and a 0.25 percentage point move. For most of Tuesday, markets indicated a strong likelihood of an increase.
Chairman Jerome Powell and his fellow Fed policymakers will resolve the question over raising rates by watching macroeconomic reports that continue to flow in, as well as data from regional banks and their share prices that could provide larger clues about the health of the financial sector.
Smaller banks have been under intense pressure in recent days, following the closures of Silicon Valley Bank and Signature Bank, the second- and third-largest failures in U.S. history. The SPDR Regional Bank ETF fell another 1.5% Wednesday and is down more than 23% over the past five trading days.
SPDR S&P Regional Bank ETF, 5 days
In a dramatic move Sunday evening, the central bank launched an initiative it called the Bank Term Funding Program. That will provide a facility for banks to exchange high-quality collateral for loans so they can ensure operations.
Inflows to impacted banks could be reflected through their share prices to indicate how well the Fed’s initiative is working out to maintain confidence in the industry and keep money flowing.
Fed officials also will get data in coming days to see how active banks are in taking using the facility.
If banks are using the BTFP to a large…
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