© Reuters.
Investing.com – Friday’s Silicon Valley bank shutdown prompted a deep reconsideration of what the Fed did to US markets, and the cracks as a result of what the Fed did seem to be starting to show.
The Fed raised the interest rate by 475 points, after the interest rate was zero percent after the Corona disaster.
The Fed continued its hawkish tone until last Wednesday when Jerome Powell, the Fed chair, was testifying on Capitol Hill. Powell said interest rates will be higher than previously expected.
The market reacted to the news and started raising the possibility of a rate hike on March 22nd by 50bps rather than the 25bps previously expected.
However, the events of Thursday and Friday led to the collapse of the Silicon Valley Bank, which appears to be the main culprit in its collapse in raising interest rates and causing turmoil in the bond market. Because as bond yields rise, we see that the value of the bonds themselves decrease. Since 2008, banks have been required to hold a large amount of bonds of all kinds, to prevent any collapse similar to what happened in the past.
As the bonds fell in value, liquidity became tight, the bank began to struggle and eventually failed to meet customer deposits, and now regulators are working to find buyers for the bank.
After this news and the market’s consideration of what the high interest rates are doing, the Fed’s expectations began to be reconsidered.
What is expected of the Fed now?
After the release of the employment data showing the unemployment rate rising to 3.6% from 3.4%, the market is now pricing in a rate hike of 25 basis points on March 22 instead of 50 basis points.
On top of this and that, the market price began to cut interest rates in December of 2023, after it was the second half of 2024 to start cutting interest rates.
Markets by the end of Friday
It could stabilize at an important support point, after losing 0.65%, to drop to 104.625.
It proceeds relentlessly on hopes of recession in the economy and the start of interest cuts, to record in immediate transactions $1,867 an ounce, an increase of 1.99%, and in future transactions, it records $1,872 an ounce, an increase of 2.08%.
The main US indices fell by more than 345 points, Nasdaq by 1.76%, by 1.45%.
