- US stocks fell Wednesday ahead of the Federal Reserve’s March interest rate decision.
- Traders were estimating expectations of a 25 basis point rate hike.
- The Fed’s decision is the first since the collapse of the SVB caused trouble for regional banks.
US equities slipped on Wednesday as the Federal Reserve prepared to release its March interest rate decision and policy makers weighed banking troubles following the collapse of Silicon Valley Bank along with still elevated inflation rates.
The S&P 500 crashed after it marked its second straight rise and first close above 4,000 since March 6 on Tuesday. But some speculative stocks rose as GameStop jumped sharply after the video game retailer unexpectedly reported its first profit in two years.
The main event of the day is a meeting of the Federal Open Market Committee, the first since the collapse and confiscation of tech start-up lender SVB. According to the CME FedWatch tool, the probability that the Fed would raise the Fed funds rate by 25 basis points was 89% at the beginning of Wednesday. This month, expectations for the Fed’s next rate moves have changed dramatically since the start of the COVID pandemic.
Here’s where the US stocks were shortly after the 9:30 opening call on Wednesday:
SVB lost nearly $2 billion selling a portfolio of bonds that was drastically reduced in value by the Fed’s aggressive interest rate hike. Frightened depositors quickly pulled billions of dollars out of the bank and sparked a wave of customers pulling their money out of small and medium-sized banks and into larger institutions.
“When the Federal Reserve adopted a ‘data-driven’ approach to setting monetary policy, I doubt hourly monitoring of deposit flows at small and medium-sized banks across the country was part of that calculation,” Zachary Hill said. portfolio management at Horizon Investments,” Insider wrote. “We expect them to split the difference and raise the price by 25 basis points.”
The policy decision is due at 2:00 pm ET and Fed Chairman Jerome Powell will speak at 2:30 pm ET.
“The financial conditions of the capital market, such as stock valuation, corporate credit spreads and the exchange value of the dollar, have been the Fed’s focus so far, but we believe that in the future this will shift to how efficiently the banking system distributes credit throughout the real economy.” . “, Hill said.
Here’s what else is happening today:
Silicon Valley Bank’s parent company accused the FDIC of “wrongdoing” to block the firm from accessing its $2 billion in cash.
Cathy Wood says the Fed’s rate hike hit Ark’s strategy like an “earthquake” as the fund suffered a $2 billion loss.
Nobel economist Paul Krugman is sounding the recession alarm as banking fears mount, but shrugging off fears of another financial crisis.
Lead economist David Rosenberg said the Fed should return to bigger rate hikes after bouts of “speculative frenzy”.
The pound jumped after an unexpected increase in inflation in the UK to 10.4%.
In commodities, bonds and cryptocurrencies: