The eyes will be riveted on Wednesday on the American central bank, which ends its meeting and will say if it raises its rates, at a time when confidence seems to be returning to the stock markets and markets following two weeks of turbulence in the banking sector.
The powerful Fed is faced with a difficult arbitration: should it continue to raise its main key rate to curb the persistently high inflation, or take a break, in order to avoid aggravating the difficulties of the banks?
“The near-death experience in the banking sector over the past two weeks should make Fed officials more measured,” said Steve Englander, senior economist at Standard Chartered and former Fed economist.
The assumption of a moderate increase, of a quarter of a percentage point, or 25 basis points, thus largely prevails among market players, according to the assessment of CME Group.
Expectations had been on a rollercoaster ride, going from a sharp rise of half a percentage point (50 basis points) in a few days following the Fed Chairman’s remarks on inflation, to zero when the the mini-banking crisis.
The bankruptcies of US regional banks Silicon Valley Bank (SVB), Signature Bank and Silverline have created a wave of concern in the banking sector and in global markets. Governments, central banks and regulators intervened urgently to try to restore confidence, the best weapon to avoid contagion at all costs.
But the Swiss bank Credit Suisse, already in difficulty for years, paid the price, and was urgently bought out on Sunday by its compatriot UBS.
– “Restore confidence” –
Calm seemed to return on Tuesday, however. European stock markets closed on a second consecutive rebound, and on Wall Street, which also ended in the green, it was even the banking sector that led the market up. The American bank First Republic has soared by almost 30%.
“Pressure on banking sector securities seems to be easing following the actions of regulators to restore confidence”, commented Rubeela Farooqi, chief economist for HFE, who does not however rule out the risk of “fear of new bankruptcies and risk of contagion”.
The Fed meeting began Tuesday morning and will end Wednesday at midday. A press release will be published at 2:00 p.m. (6:00 p.m. GMT) then the president of the institution, Jerome Powell, will hold a press conference at 2:30 p.m. (6:30 p.m. GMT).
Jerome Powell “will recognize the risks to the banking sector, but will argue that the threat is contained”, anticipates Ian Shepherdson, chief economist for Pantheon Macroeconomics.
For him however, “any rate hike today is a mistake”, because “the Fed has done enough to bring inflation back to target, and we cannot be sure that the threats once morest the banking system have passed” .
– Like the ECB? –
Especially since the fall of these banks was pushed by the increases in the Fed’s rates, which climbed at a rate not seen since the beginning of the 1980s, during the episode of very high inflation that had then been experienced United States.
Between 0 and 0.25% a year ago, rates are now between 4.50 and 4.75%.
The Fed will also update its economic forecasts, in terms of GDP growth, unemployment and inflation, and its officials will say how far they see rates rising.
The US central bank is all the more under pressure as its European counterpart, the ECB, raised its rates by 0.50 points on Thursday, ensuring that it would not compromise between price stability and financial stability.
The Fed lent some $164 billion to US banks within days, so that any customers who wanted to withdraw their money might do so, as well as $142.8 billion to the two entities created by US regulators to succeed SVB and Signature. Bank.
Contrary to the fight once morest inflation led by the Fed, these loans have increased its balance sheet by 297 billion dollars, which it had nevertheless been trying to reduce since June. It had bought securities during the Covid-19 pandemic to flood the market with liquidity and allow it to continue operating.
