Banking sinks: Can the ‘panic effect’ slow down the Fed’s plans?

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Markets in red this Monday -Ibex 35, CAC 40, DAX…- for fear that the crash of SVB Financial Group (NASDAQ:SIVB) has caused investors and the contagion effect at international level in sectors such as banking.

In Europe, the sector index is left almost 4%, with red lanterns such as Commerzbank (ETR:CBKG) or Banco Sabadell (BME:KNOW) that fall above 2 digits.

“While we understand that the prompt and, in our view, wise joint intervention by the Federal Reserve (Fed), the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC), guaranteeing the collection of ‘all’ deposits, both guaranteed and uninsured – in the US the FDIC guarantees all deposits up to $250,000 – should serve to reassure investors, the truth is that, from this moment on, central banks will have to measure their steps ‘better’ in their fight against high inflation if they do not want to cause greater evils, “they point out in Link Securities.

This panic effect has made experts begin to consider the possibility that the US Federal Reserve (Fed) will put the brakes on its superhawkish strategy.

In fact, the consensus has lowered from 70% to 60% the possibility that the Fed will Raise your interest rates by 50 basis points in your next Meeting of March 22. “In our opinion, it is very likely that the Fed has taken note of what happened and will decide to act from now on, both in terms of its rate decisions and in the communications by many of its members, in a more measured way,” they point out in Link Securities.

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“Powell (Fed) had moved the outlook on maximum rates somewhat upwards (to just above 5.60%). It is likely to employ a tougher approach just in case inflation did not subside between March and June (the key period) and that, combined with full employment and a stronger-than-expected business cycle, forced the Fed to raise rates beyond the 5.25/5.50% already discounted. But it is most likely that inflation will return from the March figure (which will be published in the second week of April) and that will not be necessary”, explain Bankinter (BME:BKT).

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