Goldman Sachs economists expect the Federal Reserve to slow down the pace of its interest rate hikes following the collapse of Silicon Valley Bank and its takeover by U.S. regulators on Friday.
Despite the government’s pledge to contain the crisis, the fallout has created a wave of concern and financial strain for U.S. banks. This comes as the Federal Reserve appeared intent on accelerating its interest rate hikes to beat down inflation. Treasury two-year yields dropped 18 basis points to 4.34%, putting them on track to their steepest three-day decline since October 1987.
Yields on two-year Treasury notes skyrocketed above 5% last Wednesday after Fed Chair Jerome Powell suggested that 50 basis point hikes were on the table if economic data continued to point to high employment and payrolls. Now, a quarter-point interest rate hike next week is looking more likely.
“We continue to look for a 25 basis-point hike at next week’s meeting,” Michael Feroli, chief US economist at JPMorgan Chase & Co. stated on Sunday. “Even before the problems flared up in the banking sector, we thought a 50 basis-point move would be ill-advised, and we still think that is the case.”