With the Federal Open Market Committee convening on Wednesday and the recent financial troubles facing the US banking system, White House Press Secretary Karine Jeanpierre said President Joe Biden said he “trusts” Federal Reserve Chairman Jerome Powell. Meanwhile, the target rate probability suggests the Fed will raise the federal funds rate by 25 basis points (bps) this week, according to CME Group’s Fedwatch tool. The probability that the U.S. central bank will not raise rates this month is 26.9%.
Markets laser-focused on upcoming Fed meeting, Biden administration confident in Powell’s leadership
It has been a tumultuous week in the U.S. banking industry, with three major banks failing and the Federal Reserve announcing a full bailout of two of them. In addition, the U.S. central bank created the Bank Term Funding Program (BTFP)to assist failing banks and their depositors. In addition, the Fed provided banks with$164.8 billionin enhanced liquidity, and on March 19, it joined with five other major central banks to increase the liquidity of the U.S. dollar.
To make matters worse, according to a recently releasedpaper, roughly 186 U.S. banks are dealing with the same problem as Silicon Valley Bank, with First Republic Bank’s stock plummeting on March 20, losing over 40% of its value in one day. Meanwhile, on March 22, the Federal Open Market Committee (FOMC) and Fed Chairman Jerome Powell will determine the fate of the federal funds rate.
Prior to the impact on the banking industry, the U.S. central bank had been rapidly raising its benchmark interest rate every month since this time last year after significant monetary easing in response to the Covid 19 pandemic, keeping the agency’s rate at zero. When inflation began to soar, Fed members, including Chairman Powell, called it “transitory” and predicted it would not last.
But the Fed’s quick monetary tightening in response to inflation has caused serious problemsfor long-term debt. At Monday’s White Housepress briefing, Press Secretary Karine Jeanpierre was asked about President Biden’s opinion of Fed chair leadership and whether Powell could be replaced as head of the Fed.” No, not at all. The President has confidence in Jerome Powell,” Jean-Pierre said.
Eight days earlier, on March 13, President Biden had reassured Americans that the U.S. banking system was safe.” Americans can rest assured that our banking system is safe,” hesaid.” Your deposits are safe. Let me also assure you that we are not standing still here. We will do whatever is necessary,” the U.S. President added.
In addition, market strategists and economists are concerned about the Fed’s plans for Wednesday, with some specula