Amid a series of bank failures in the United States, the Fed = Federal Reserve, which is the central bank, will hold a meeting to decide monetary policy for two days from the 21st. Significant interest rate hikes were initially considered in order to contain inflation, but the impact on the financial system will also be considered, making it a difficult decision.
Fed Chairman Jerome Powell testified before the Senate on May 7 and said that the latest economic data is stronger than expected and that he is "ready to accelerate the pace of rate hikes" depending on future economic indicators.
However, from the 10th to the 12th of this month, two banks failed one after another.
Of these, Silicon Valley Bank is believed to have failed because the price of its bonds fell due to the rapid rate hike by the Fed, which led to a deterioration in its finances.
Against this backdrop, the Federal Reserve will hold a two-day monetary policy meeting from the 2st.
In order to contain inflation, a significant 21.2% interest rate hike was initially considered in sight.
However, we will also consider the impact of interest rate hikes on the financial system in the wake of a series of bank failures.
Expectations of a significant rate hike have receded in the market, with some predicting a 0.5% rate hike and a pause in raising rates.
Given the risk of prolonged inflation, the Fed will have to make difficult decisions.
Views on the Fed's policy decisions diverge
Views on the Fed's policy decisions are divided at this meeting.
CME Group, which owns one of the world's largest commodity exchanges, has published data that predicts the probability of a Fed rate hike based on the movement of interest rate futures.
As a result, as of 19 p.m. on March 9, 0% of respondents expected to raise the interest rate by 25.62 percent at this Japan meeting, and 38% expected that the Bank would postpone the hike and maintain the policy rate.
Former Fed Vice Chair and Blinder professor at Princeton University says it's the perfect time to pause the Fed's ongoing rate hikes.
As a reason for this, he said that it is necessary to see whether the problem of Credit Suisse, which is declining in the inflation rate and concerns about business management, will spread to the United States, and that interest rates should be raised again once the turmoil in financial markets subsides.
On the other hand, former Treasury Secretary Summers said in an interview with Bloomberg TV on the 15th that he should decide to raise the interest rate by 0.25%.
In it, Summers said, "I'm concerned that failing to raise rates by 0.25% would send a very ominous signal to how the Fed views the situation."
In addition, US Treasury Secretary Yellen, who testified before the Financial Services Committee of the Senate on the 16th, said, "High inflation is the top economic issue, and it is extremely important that the Fed addresses it," suggesting that monetary tightening such as interest rate hikes will continue to be necessary.