Goldman Sachs thinks high inflation rates could have bad consequences if nothing is done about it
Goldman Sachs (NYSE:GS) has revised upward its forecast for the pace of interest rate hikes by the U.S. Federal Reserve at its upcoming meeting, in line with expectations in the derivatives market. High inflation rates provoke serious risks.
The investment bank now forecasts a 75 basis point rate hike at the Sept. 21 meeting and 50 basis points in November, up from estimates of 50 basis points and 25 points respectively, with further hikes of another 0.25% at the last meeting this year in December.
“In their recent speeches, Fed officials have spoken in a hawkish tone, implying that progress in curbing inflation has not been as uniform or rapid as they would like,” Goldman analysts said in a note to clients.
High inflation and recession are closely related. More uncertain is the outlook for 2023, when some economists believe the Fed could pause the pace. “To what extent the containment of tighter financial conditions will be offset by other fundamental growth impulses in 2023 is more uncertain,” the experts added, “but we can imagine that the rate hike cycle will continue beyond that year.
The investment bank’s views, led by its chief executive Solomon, followed a reading of federal funds futures. According to the Fed’s rate monitor investing.com, the futures market estimates a 75 basis point rate hike in September with an 81% probability, and a 79% probability of a 50 basis point hike and another 25 points at the November and December meetings.
Market expectations are consistent with what Fed officials have been saying in recent weeks. Most recently, Deputy Governor Lael Brainard, who has traditionally taken a very soft stance, said that the U.S. central bank would have to raise rates “at a restrictive level,” while warning that future risks would be “increasingly bilateral.”
Earlier we reported that European energy companies are threatened by $1.5 trillion in marginal debt.
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Investors gravitate toward bear market after Fed decision
The consensus among investors is that the U.S. Federal Reserve will raise rates again before the end of the year and will not loosen its monetary policy until 2024, which is a bearish outlook for the stock market. So it’s important to be prepared for a drop in the S&P 500 and other indices.
That’s the prevailing view of about 350 respondents to the Instant MLIV Pulse survey after Wednesday’s Federal Open Market Committee meeting.
The findings contrast with the interest rate swap market, which is still struggling to gauge a rate cut this year. More than 70% of MLIV Pulse respondents said the Fed is not done raising rates yet. More than half said they expect the central bank to wait with its policy easing until next year.
The survey results are in line with Fed officials, but go against traders who estimated this year’s rate cut has led to lower Treasury yields.
Swap markets expect the Fed rate to peak at around 4.95% in May and then fall to about 4.2% in December.
Earlier we reported that the U.S. Department of Justice has begun investigating the collapse of Silicon Valley Bank.
Startups under threat worldwide after Silicon Valley Bank collapse
High-tech startups have been hit. Companies around the world are facing a fight for survival after the collapse of a major US investment bank, Silicon Valley Bank (SVB). There was a “huge disruption” in the industry globally, Bloomberg reported, citing market participants. The entire stock market, and the S&P 500 in particular, plummeted.
Startups under threat
The bankruptcy of the lending institution, in particular, affected the co-founder of startup Birdly Inc. Quang Hoang. The entrepreneur invested about $10 million in SVB and is still unable to repay the money four days after the bank was shut down by the California Department of Financial Protection and Innovation. However, the entrepreneur is far from the only one who has faced similar problems, the article specifies.
“Hoang was one of thousands of founders around the world this week trying to track down their money after days of chaos and who are completely rethinking the way they run their own businesses. Startups from Silicon Valley to London to Tel Aviv to tech hubs across Africa have depended on SVB as a one-stop store for everything from storing their fortunes to personal mortgages,” the story says.
Now investors and technology companies are predicting a complicated financial future for themselves, even if the bankrupt bank begins to attract deposits from customers under a new name. Many market participants faced a “financial payback” for their overreliance on the credit institution’s risky investment assets, the memo said.
On March 11, the California Department of Financial Protection and Innovation closed Silicon Valley Bank, a large investment bank based in Santa Clara County. All insured deposits from SVB were transferred to Deposit Insurance National Bank of Santa Clara. Depositors were expected to have access to their accounts by March 13.
Earlier we reported that the U.S. Department of Justice has begun an investigation into the circumstances of the collapse of Silicon Valley Bank.
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