(Seoul = Yonhap Infomax) Reporter Moon Jeong-hyun = Silicon Valley Bank (SVB), which was the source of funds for Silicon Valley in the United States, went bankrupt in an instant, and the global financial market is trembling with anxiety.
As analysts say that rapid tightening by the US Federal Reserve System (Fed) has caused the collapse of the SVB, prospects are being raised that the Fed will put a brake on interest rate hikes. Even if the situation calms down somewhat and the Fed raises interest rates again, it is predicted that the extent of the increase will not be large.
◇ The prospect of a ’50bp hike’ sharply retreated
As early as last week, the market predicted that the Fed might raise interest rates by 50 basis points this month. This is because the employment index in January far exceeded market expectations and the inflation rate continued at a high level.
However, anxiety about the financial system increased as SVB went bankrupt at a high speed in the second half of the week due to a sharp drop in stock prices and deposit withdrawals. SVB is the 16th-largest bank in the United States and has suffered the second-largest bank failure in history since Washington Mutual, a savings bank that closed during the 2008 global financial crisis.
As the SVB’s bankruptcy is estimated to amount to 151.5 billion dollars (about 200.4345 trillion won) without deposit protection, there are concerns that the repercussions will be severe.
U.S. Treasury Secretary Janet Yellen emphasized that the U.S. banking system remains robust despite the SVB shutdown, but concerns remain.
Evercore ISI economist Ed Hyman said the Fed should consider suspending rate hikes in light of the financial shock triggered by the SVB crisis. The Fed will hold its Federal Open Market Committee (FOMC) meeting on the 21st and 22nd.
Although the US authorities are pursuing the sale of SVB and are in the position of preparing safeguards in case the sale fails, Economist Hyman pointed out that the task may not be easy, and that a ‘pause’ by the Fed may be what is ultimately needed to stabilize the market. .
He noted that the Fed cut rates only five weeks after Long Term Capital Management collapsed in 1998.
“The recent turmoil in the banking industry urges the Fed to respond to inflation with smaller rate hikes,” said Goldman Sachs Asset Management. In fact, according to the Chicago Mercantile Exchange (CME) FedWatch on the 10th, the Fed Funds (FF) interest rate futures market reflected a 62% chance of a 25bp rate hike and a 38% chance of a 50bp hike by the Fed at its March meeting. Considering that they were 31.7% and 68.3% the previous day, respectively, the prospect of a 25bp hike has grown.
CNBC said, “On the 9th, market participants were almost certain that the Fed would take a more hawkish stance and double its rate hikes from last month, but a bankruptcy and favorable jobs report from one bank (SVB) changed their minds.” told
ING said, “The macro news and Chairman Powell’s testimony raised the possibility of a 50bp hike this month, but the market unrest caused by the SVB crisis is unlikely to disappear. Therefore, a 25bp hike would be more appropriate.”
◇ “Fed may eventually have to cut due to contagion risk”
Some predict that the Fed will stick with raising rates. KPMG’s economist Diane Swonk said, “I don’t think we’re going to see the financial system? It’s not going to make the Fed step down.”
Others, however, expected the Fed to cut rates by the end of the year due to the SVB crisis. This divergent outlook means that the Fed’s interest rate path has become unclear due to the SVB crisis.
According to Business Insider (BI), Larry McDonald, creator of the newsletter Bear Traps, predicted that the SVB collapse could lead the Fed to cut rates by 100 basis points by December.
McDonald’s analyzed that the Fed’s total rate hikes of 450 basis points over the past year have increased short-term Treasury yields, which has led to an outflow of deposits from banks such as SVB. “Essentially, the Fed is causing a bank run,” he said.
He said the outbreak could contagious to the entire financial ecosystem over the next few months, and that the Fed may need to pull out another fire hose to cut interest rates in the next six to nine months.
Abrdn predicts that the Fed’s most aggressive tightening since the 1980s is beginning to wreak havoc across leveraged companies, which could eventually cause the Fed to change course.
“It has always been thought that rate cuts will come sooner than the Fed or the market expects,” said an Abrdn official.
Market participants are paying attention to what measures the US financial authorities, including the Fed, will take to evolve the SVB crisis.
On the 12th (local time), the US financial authorities took emergency measures to prevent the spread of the crisis when even the signature bank in SVB was closed.
The Treasury Department, the Federal Reserve System (Fed), and the Federal Deposit Insurance Corporation (FDIC) have agreed to fully guarantee the deposits of SVB and signature banks. announced the creation of
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This article was serviced at 08:58, 2 hours earlier on the Infomax financial information terminal.
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