The stock market could see a sell-off if the Federal Reserve decides against an interest rate hike at the March meeting, as it would suggest more banks are teetering, according to DataTrek Research.
Before Silicon Valley Bank failed last week, markets widely expected a Fed rate hike of 25 or even 50 basis points this month. Fed officials also signaled more increases were coming. Now the odds that the Fed holds rates steady are 43%, while the odds of a quarter-point increase are 57%, according to CME's FedWatch Tool.
Should a pause happen at next week's Fed meeting, DataTrek cofounder Nicholas Colas said global equities would likely tumble by 3% to 5%. , it would be a sign that they knew other US regional banks were on the precipice of failure," he wrote in a Wednesday note., Colas added. "As much as equities want to see Fed Funds stabilize, they want this to happen for the 'right' reason: the Fed growing convinced that inflation is under control and on a glide path to 2 percent," he wrote."A sudden raft of bank failures or even a dramatic contraction in bank lending due to systemic uncertainty is definitely a very"wrong" reason to pause rate hikes.
Don't agree. It means they realize they have raised enough inflation is falling and economic circumstances have changed. It would show they can be smart
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