Fed faces tough decision

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.

Russell Shor

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.

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