The Federal Reserve will make its monetary policy decision public on Wednesday. In spite of recent turmoil and jitters in the banking sector, analysts at Danske Bank expect the Fed to raise rates by 25 basis points.
The Fed cannot afford to stop monetary policy tightening.
“We anticipate the Fed to deliver a similar message next week. This week, the ECB emphasized that there is no trade-off between inflation and financial stability risks. Banks received USD11.9 billion in its first three days of use from the new Bank Term Funding Program, which allows them to borrow against collateral valued at par.
Short-term real rates and overall financial conditions have remained relatively stable up to this point. Our in-house ‘development charge’ measure is at unobtrusively prohibitive region, as the fixing in credit and value parts has made up for the lower yields and home loan rates. For the time being, we like our call of a 25bp rate hike next week and a terminal rate of 5.00-5.25 percent in May, so we see modest upside risks to short-term rates from current levels. This suits the Fed well as long as the macro data remains strong.