The Silicon Valley Bank debacle suddenly changed the outlook for interest rates in 2023
It also shook up expectations for the Federal Reserve's next move to curb the country's inflation problem.
The Fed has increased interest rates eight times over the last year to keep prices from rising too quickly, and since December, it has slowed the pace of hikes as it works to achieve its goal of getting inflation to its 2% goal. The central bank has made clear that interest rate cuts will not happen this year, and Fed Chair Jerome Powell has repeatedly stated that raising borrowing costs will be necessary this year as the central bank continues to fight inflation.
The pace and duration of those interest rate hikes is at the top of mind for markets and investors.
The collapse of SVB on Friday reversed predictions of such a hawkish Fed. After vacillating much of Monday, investors seem to have settled their bets: There will be a 28.4% chance the Fed will hold rates steady, while giving a 25 basis point hike a 71.6% probability, as of 1:58 PM EST Tuesday afternoon. Investors now think a larger 50 point hike is out of the question.Investors expect the Fed to back off its aggressive rate hikes because these indirectly caused SVB's collapse.
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