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After a two-day meeting, the Federal Reserve will decide this Wednesday whether to continue implementing its strategy of making credit more expensive to cool consumption or decree a pause, at least until confidence in the financial system is restored.
“What was normally going to be a routine Federal Reserve meeting turned into a real tightrope balancing act,” said Alexander Kurov of West Virginia University, describing it on The Conversation analysis portal. What happens this Wednesday behind the scenes of the most important central bank in the world.
Indeed, while most Wall Street bankers expect the Federal Reserve to raise interest rates by 25 basis points, some point to the possibility of a pause as concerns about a global banking crisis mount.
Meanwhile, bets for a 50 basis point rise were abandoned in a swift reversal of expectations, following the collapse of Silicon Valley Bank and Signature Bank earlier this month, as well as the woes of Swiss lender Credit Suisse.
The Fed, in a dilemma
The Federal Reserve faces a key decision this time: continue its aggressive fight against inflation or suspend it so as not to exacerbate the global banking turbulence caused by the failure of Silicon Valley Bank, which occurred on March 10.
Investors are waiting for a sign on whether the recent banking turmoil would make interest rate hikes less pressing.
The Fed, whose relentless rate hikes to control inflation are among the factors blamed for the biggest banking sector collapse since the 2008 financial crisis, seems more inclined to raise rates, albeit at a slower pace.
Policymakers from Washington to Tokyo have emphasized that the turmoil is different from the crisis of 15 years ago, saying banks are better capitalized and funds more readily available.
However, the Central Bank of the United States has a long way to go: annual inflation, at 6%, is already far from the peak of 9% reached in the summer of last year; but it is still more than the goal set of 2%.
With Reuters and AP
