The Federal Reserve is facing one of its toughest decisions yet in terms of interest rates due to recent banking turmoil. Although the Fed had been preparing for a potential 50 bps rate hike just a few weeks ago, the collapse of Silicon Valley Bank has led to a banking panic that has made the decision more complicated.
As the Fed meets, officials must carefully consider how much weight to give the banking panic, as a lack of a rate hike may suggest concern and cause more panic, while an aggressive hike could tighten financial conditions during a delicate time for the banking system and potentially trigger further consequences.
Despite efforts to stabilize the banking system, such as the $30bn lifeline by 11 banks to First Republic Bank, the decision remains challenging. Inflation is also a concern, with an annual rate of 6%. A 25 basis-point hike may be appropriate, but the Fed must balance various factors to make the best decision possible.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.