While Goldman Sachs sees the recent brouhaha in the banking industry as a sign for the Federal Reserve to stave off any interest rate hike, Nomura Securities took it a step further and predicted that the benchmark rate will actually be cut by 25 basis points.
“In reaction to looming financial stability risks, we now expect the Fed to cut rates,” Nomura economists Aichi Amemiya and Jacob Meyer wrote Monday in a note. “We also expect the Fed to stop quantitative tightening.”
The economists noted that “ending QT should help keep the amount of reserves more ample than they would be otherwise.”
Following the failure of Silicon Valley Bank on Friday, the Fed and other regulators carried out steps over the weekend, including a guarantee for bank deposits, to bolster trust in the banking system.
“However, judging by the market’s reaction, financial markets seem to view these policy actions as insufficient, as stock prices for the US financial sector continue to decline as of this writing,” Amemiya and Meyer said.
They added that “it is possible the Fed may create a new lending facility by either offering a wider eligibility of collateral assets or broader access for borrowers through an emergency lending facility.”
Earlier, Barclays Plc and Natwest Markets economists joined Goldman Sachs Group in calling for a pause in the Fed’s monetary tightening effort at the March meeting.
Overnight index swaps are currently pricing in a 12 basis point tightening at the meeting, implying a roughly equal chance of a quarter-point rate hike.
History, however, has been recurring that whenever an aggressive rate cut is implemented, the markets react negatively.
Ken Griffin, head of Citadel hedge fund, said the US central bank’s rescue plan for Silicon Valley Bank proves that American capitalism is “breaking down before our eyes”.
Griffin told the Financial Times that the US government should not have interfered to rescue all SVB depositors following the bank’s failure on Friday in Santa Clara.
“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he said in an interview. “There’s been a loss of financial discipline with the government bailing out depositors in full.”
According to persons informed on the project, venture capital firms are working on a long-shot strategy to save parts of Silicon Valley Bank so that it may continue to service clients in the technology sector.
Since late last week, a group of more than a dozen venture capital firms has been discussing how SVB might continue lending to, investing in, and advising companies and leaders in the field. According to the sources, General Catalyst, Andreessen Horowitz, and Khosla Ventures are among the firms engaging in the discussions.
They stated that one of the possibilities being explored is forming a consortium with private investment firm Apollo Global Management to bid for portions of Silicon Valley Bank.
Information for this briefing was found via Bloomberg, Financial Times, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
