The Chief Economist at Moody’s (NYSE:MCO) Analytics, Mark Zandi, believes that the US Federal Reserve (Fed) is unlikely to raise interest rates in its March meeting, as there is a “burden of uncertainty” around recent bank failures.
The financial turbulence of recent days will certainly affect monetary policy decision-making when the Federal Open Market Committee meets next week, he said.
“I think they’re focusing on the bank failures that rocked the banking system and the markets in the last few days,” Zandi said.
“There’s a lot 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 next week’s meeting.”
His comments follow U.S. regulators who shut down SVB Financial Group (NASDAQ:SIVB) on Friday and took control of their deposits in the biggest U.S. bank failure since the 2008 financial crisis, and the second largest in history.
The Fed’s calculation of interest rates could get complicated as the U.S. economy continues to struggle with high inflation. The latest data from the CPI On Tuesday they showed inflation rose in February, but was in line with expectations.
While inflation remains a problem for the U.S. economy, it is “moderating” and moving in the right direction, Zandi says.
Zandi is not the only one calling for a pause in rate hikes. On Monday, Goldman Sachs (NYSE:GS) said it does not expect the Fed to raise rates this month. But the market still foresees a 25 basis point increase Next week.
The bank no longer expects a hike at its March meeting, citing “stress on the banking system” following the collapse of Silicon Valley Bank.
Market expectations have changed significantly in recent days and a quarter-point increase is now considered more likely. But Goldman analysts, who previously saw a 25 basis point increase, don’t see any increases when the Fed meets next week.