Partner With Us NRI

Open Free Trading Account Online with ICICIDIRECT

Incur '0' Brokerage upto ₹500


Is Fed in position to hike rates further? How far can it go?

ICICIdirect Research 14 Mar 2023 DISCLAIMER

What's Buzzing 

Failure of a US bank made investors dial back rate hike expectations by 50 bps in the March meeting. 


Before Silicon Valley Bank’s (SVB) collapse the market was pricing in a 50 bps rate hike in the upcoming meeting amid a tight labour market and hotter than forecast inflation figures. Additionally, hawkish statements from the US Federal Reserve supported market expectations of higher rates for a longer period. After the failure of two US banks and worries over a contagion, the market now expects the Fed to reconsider its current stance. 

Our Perspective 

We expect the US Federal Reserve to take a backseat soon and pause its tightening plans as a year of rapidly tightening financial conditions is finally hitting the financial sector. The Fed may have to change its stance considering the lag effect of the full effects of the rate hikes to ripple through the economy and on recent worries over a fallout in the banking sector and contagion concerns stemming from troubles at Silicon Valley Bank (SVB). Major US banks had already lost billions in market value leading to broader concerns about the health of the financial sector. The SVB fallout has outlined the consequences of rising rates on some lenders. This problem could affect the whole industry. Moreover, yields are tumbling in anticipation that the Fed may pause its tightening plans soon. US two-year yields, which move in tandem with rate hike expectations, saw the biggest three-day decline since 1987 and are likely to slip further as the market may start pricing in possible rate cuts much earlier than previously expected.

Download App

Download Our App

Play Store App Store
market app