Federal Reserve’s March Meeting: Will Interest Rates Increase or Pause?
As the Federal Reserve prepares to hold its next policy meeting on March 21 and 22, investors are split on whether the Fed will raise interest rates by a quarter percentage point or take a pause.[0] This comes after the recent collapse of Silicon Valley Bank (SVB) and subsequent fallout, which has raised market uncertainty and questions about the Fed’s ability to tighten much more going forward.
The most prudent course of action may be to pause and assess the damage, but the Fed does still retain a desire to get the policy rate higher, should conditions allow.[1] Economists at Goldman Sachs, Moody’s and JP Morgan Chase all believe the Fed will hold the federal funds rate steady to avoid injecting more turbulence into the economy.[2]
Before the banking sector crisis, Fed policy makers were poised to raise rates by as much as 50 basis points after a string of data suggested the economy was much stronger than officials thought at the beginning of the year.[3] However, heightened uncertainty over the extent to which bank capitalization issues – exacerbated by the Fed’s rapid interest rate increases and the impact on Treasury yields – will affect the broader economy may limit Fed Chair Jerome Powell’s ability to tighten much more.
On 22 March, there is a possibility of a 25bp move or no change.[4] Goldman Sachs says it no longer expects the Fed to hike rates at all in the March meeting, signaling that a dovish result may be in the works.[5] Meanwhile, Bank of America still expects a quarter-point hike.[6]
Also highly anticipated from the Fed meeting is an update to its Summary of Economic Projections – a quarterly report laying out participants’ forecasts for everything from inflation to interest rates – and Chair Jerome Powell’s post-meeting press conference.[7] Here, Powell will likely face questions around the central bank’s supervision of SVB and other struggling entities, as well as the likely future path of interest rates.[7]
The decision of whether to raise or pause interest rates is an important one, as it will have a significant impact on the economy and may set the tone for the rest of the year. It remains to be seen how the Fed will respond to the banking sector crisis, but the outcome of this meeting will surely be closely watched.[6]
0. “Fed in a Fix! Will the US Federal Reserve pause, raise rates by 50 bps or continue with 25 basis points?” msnNOW, 16 Mar. 2023, https://www.msn.com/en-in/news/other/fed-in-a-fix-will-the-us-federal-reserve-pause-raise-rates-by-50-bps-or-continue-with-25-basis-points/ar-AA18I2MT
1. “Fed to hike 25bp should conditions allow” ING Think, 17 Mar. 2023, https://think.ing.com/articles/fed-to-hike-25bp-should-conditions-allow/
2. “Will the Fed still raise interest rates?” SFGATE, 15 Mar. 2023, https://www.sfgate.com/personal-finance/article/will-the-fed-raise-interest-rates-17841622.php
3. “Federal Reserve Interest Rates Latest: Fed Pause Likely on SVB Fallout” Bloomberg, 18 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-18/federal-reserve-interest-rates-latest-fed-pause-likely-on-svb-fallout
4. “Fed To Hike 25bp Should Conditions Allow” Seeking Alpha, 17 Mar. 2023, https://seekingalpha.com/article/4588374-fed-to-hike-25bp-should-conditions-allow
5. “Rapid US rate repricing could lift gold even higher” FXStreet, 14 Mar. 2023, https://www.fxstreet.com/analysis/rapid-us-rate-repricing-could-lift-gold-even-higher-202303140913
6. “Fed’s Looming Rate Decision Could Confirm Crisis At Hand—Or Trigger A Worse-Than-Feared Recession” Forbes, 17 Mar. 2023, https://www.forbes.com/sites/jonathanponciano/2023/03/17/feds-looming-rate-decision-could-confirm-crisis-at-hand-or-trigger-a-worse-than-feared-recession/
7. “Fed to Consider a Pause as Fallout From SVB Roils Markets” Yahoo Finance, 19 Mar. 2023, https://finance.yahoo.com/news/fed-consider-pause-fallout-svb-200000314.html
