Major indices on the U.S. New York Stock Exchange are showing a decline in early trading on the 22nd (local time) as they await the results of the March Federal Open Market Committee (FOMC) regular meeting. This is the Federal Reserve's (Fed) first interest rate decision since the recent Silicon Valley Bank (SVB) bankruptcy crisis heightened concerns about the banking system.
As of 10:03 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 14.95 points (0.05%) from the previous close, trading around the 32,545 level. The S&P 500, which focuses on large-cap stocks, fell 2.04 points (0.05%) to the 4,000 level, while the tech-heavy Nasdaq dropped 7.55 points (0.06%) to 11,852.
Currently, eight sectors in the S&P 500, excluding technology, materials, and healthcare stocks, are all showing declines. Real estate stocks, in particular, have fallen more than 1%. Among individual stocks, GameStop is trading more than 30% higher than the previous close after its fourth-quarter earnings exceeded expectations. Lumina Technologies dropped over 12% after Goldman Sachs downgraded its investment rating from neutral to sell. First Republic Bank, which has experienced extreme volatility amid crisis rumors following the SVB bankruptcy, is up 3.3%.
Investors are awaiting the release of the March FOMC regular meeting results and the subsequent press conference by Fed Chair Jerome Powell this afternoon. As concerns about the banking system crisis have somewhat eased due to interventions by U.S. authorities, the market currently leans toward a baby step increase of 0.25 percentage points in the benchmark interest rate. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of this morning, the federal funds futures market reflects an over 87% probability that the Fed will raise rates by 0.25 percentage points at the March FOMC meeting. The probability of a rate hold is 12.2%, and the chance of a big step (0.5 percentage point increase) is 0%.
Eric Knutchen of Neuberger Berman said, "I expect the Fed to raise rates by 0.25 percentage points," adding, "However, they will likely try to signal that the rate hike cycle is nearing its end with dovish remarks." He mentioned the Fed's liquidity support related to recent banking risks and added, "A shift in banks' stance could lead to significant tightening, which we expect to have the most adverse impact on the economy."
Some market participants still support a rate hold. Lloyd Blankfein, former CEO of Goldman Sachs, appeared on CNBC's Squawk Box and reiterated his view from a few days ago, saying, "Personally, I do not expect a rate hike." He emphasized, "There is not much difference between a 'hawkish rate hold' and a 'dovish 0.25 percentage point hike'; everything lies in the subsequent rhetoric." Due to the Silicon Valley Bank (SVB) crisis, a temporary rate hold could be implemented, but Powell's hawkish remarks could emphasize that the fight against inflation is not over. This view aligns with recent tweets by Bill Ackman, CEO of Pershing Square Holdings, a hedge fund magnate. Powell's press conference will begin at 2:30 p.m. Eastern Time.
Concerns about persistently high inflation remain. Ahead of the Fed's policy decision, Christine Lagarde, President of the European Central Bank (ECB), stated in a speech, "Since July last year, we have raised rates by 3.5 percentage points. However, inflation remains high, and uncertainty about the future path has increased."
This week, following the Fed, the Bank of England (BOE) is scheduled to announce its interest rate decision on the 23rd. The market largely expects the BOE to take a baby step. The UK’s February Consumer Price Index (CPI) inflation rate, released today, stood at 10.4% year-over-year, exceeding both market expectations (9.9%) and the previous month's increase (10.1%).
In the New York bond market, Treasury yields rose ahead of the FOMC decision. The 2-year U.S. Treasury yield, sensitive to monetary policy, climbed to around 4.23%. The 10-year yield is trading near 3.61%.
European stock markets are showing slight gains. Germany’s DAX index is up 0.52%. The UK’s FTSE index rose 0.32%, and France’s CAC index increased by 0.47%.
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