The US Federal Reserve is skating on thin ice. Inflation is still sticky even after record rate increases, and any further Fed aggression could have a severe impact on the financial health of banks and economy. The Fed will take the decision on a rate hike on March 22.
Markets expected a rate hike of 25bps till the early days of March.
However, later on, Powell signalled to speed up the pace of rate hikes and take the terminal rate higher than expected, if inflation keeps running hot. Investors are still wary of the possibility that the Federal Reserve would need to increase interest rates further to control inflation, increasing the likelihood of a recession.
Here are some views from industry experts on what the US Fed could do on March 22 – Pause, hike rate by 25 bps or 50 basis points?
Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations
The 6% headline figure is positive, and together with the collapse of Silicon Valley Bank and Signature Bank, the second and third biggest bank failures in US history, will certainly give the Fed cause to reconsider their rate hiking agenda.
However, against a backdrop of a robust labour market, we still expect the central bank to raise interest rates by a quarter-point at their next meeting on March 22.
Should the Fed pause the rate hike agenda now, it puts them at risk of exposing themselves to inflation speeding up again. And then they would be forced to make larger hikes later, which would harm their objective and dent their credibility, so they can be expected to err on the side of caution.
As such, it is likely that they will hike rates, albeit by a quarter-point. But due to the time lag associated with CPI data, we would champion a move by the Fed not to raise rates at all later this month.
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Kavan Choksi, wealth consultant at KC Consulting
While a 50-basis point hike was all but certain last week before the SVB drama unfolded, some analysts are predicting that the Fed may stand pat and not hike rates at all next week. Goldman’s base case forecast for next week’s FOMC meeting has changed, and they predict that the Fed will not hike rates at all.
This seems a little too bullish in my view, and while a 50-basis point hike may be off the table due to the SVB debacle, I believe a 25-basis point hike will probably be the most likely outcome.
Adam Taggart, Host, CEO & Founder of Wealthion
The CPI is still too hot for Powell to pause rate hikes (forget about rate cuts). Shelter data is the biggest component of CPI – this is massively lagging data that does not yet reflect the obvious correction in-process with home prices. Yet the Fed will look at this, plus the overinflated jobs stats, as rationale it needs to continue hiking. The end result is the Fed is likely creating a much deeper recession than necessary.
My opinion remains that the Fed should pause (it should have paused a while ago) to wait for the lag effect of its previous hikes to play out.”
Doug Fincher, co-portfolio manager of Ionic Inflation Protection ETF CPII and portfolio manager of the $3.8B hedge fund, Ionic Capital Management.
Volatility and uncertainty are elevated. But even if the Fed pauses, a pause is not a pivot. Not raising 50 bps leaves 25 bp on the table or an increase after a pause. CPII will benefit from sustained higher rates and inflation.