"I expect the Fed to pause their rate hikes this week, but to resume tightening at their May meeting after policymakers have stabilized the financial system," Mark Zandi, the chief economist at Moody's Analytics, told Anadolu Agency via email, APA reports.
The US Federal Reserve is expected to pause interest rate increases on Wednesday, but continue rate hikes at its next meeting after the US financial system and banking outlook are stabilized, according to the expert.
The US central bank on Tuesday has kicked off its most critical two-day meeting of the year as the American banking system faces a crisis amid the demise of four banking institutions.
Within a matter of weeks in the US, Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank have gone under, causing panic among Wall Street and investors, but most especially depositors.
It is now a question whether the banks' failures would have a spillover effect on the rest of the US economy, and by and large the rest of the world, especially in the aftermath of the Swiss bank Credit Suisse's demise in Europe.
Zandi noted that the failures of SVB, Signature Bank, and Silvergate Bank, with assets collectively close to $325 billion, along with the "travails" of the large Swiss bank Credit Suisse, have "roiled" the global financial system.
He argued that the Fed will be under pressure this week to pause rate hikes, since financial stability has suddenly become its number-one priority, adding: "It would seem incongruent for the Fed to establish a credit facility to support liquidity in the banking system one week and raise interest rates the next."
The expert, however, noted that once the US financial system settles in the coming weeks, the Fed is expected to "pivot back" to addressing the high inflation and increase interest rates by 25 basis points each in its May and June meetings.
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