Goldman Sachs no longer expects the Fed to raise interest rates in March

  • “In light of the pressure in the banking system, we no longer expect the FOMC to raise interest rates at its next meeting on March 22,” Goldman economist Jan Hatzius said in a note on Sunday.
  • The company expects the latest measures to “provide significant liquidity to banks facing deposit outflows” and boost confidence among depositors.

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

Earlier on Sunday, US regulators announced measures to curb contagion fears after the Silicon Valley bank collapse. Regulators also shut down Signature Bank, citing systemic risks.

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

The company previously expected the Federal Reserve to raise interest rates by 25 basis points. Last month, the Federal Open Market Committee boosted the federal funds rate by a quarter of a percentage point to its target range from 4.5% to 4.75%, the highest level since October 2007.

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The package of relief measures announced Sunday stalled similar moves taken during the 2008 financial crisis, said economists at Goldman Sachs. The Treasury Department has designated SVB and Signature as systemic risks, while the Fed created a new bank funding program to support Institutions affected by market instability after the failure of the SVB.

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“These two steps are likely to increase confidence among depositors, despite the fact that no FDIC guarantee is available for uninsured accounts as implemented in 2008,” they wrote.

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

Goldman Sachs added that they still expect 25 basis points to rise in May, June and July, reiterating their final interest rate forecast of 5.25% to 5.5%.

— CNBC’s Michael Blum and Jeff Cox contributed to this post

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