Published on 20 Mar 2023 on Zacks via Yahoo Finance
Rate Hike or Not: ETFs in Focus Ahead of FOMC Meet
All eyes are currently on the crucial two-day FOMC meeting (slated to start on Mar 21) to see whether the hawkish central bank will go for a 50-bps hike or a smaller one or a halt following the latest crunch in the financial sector.Several ETFs are in focus and can see outsized volume, depending on the upcoming Fed decision. A few ETFs — including SPDR S&P Regional Banking ETF KRE, Vanguard Consumer Discretionary ETF VCR, Invesco DB US Dollar Index Bullish Fund UUP, SPDR Gold Trust ETF GLD and iShares MSCI Emerging Markets ETF EEM — are in focus.It has been a year since the Fed started its fastest rate-hiking campaign since the 1980s and enacted the first of the eight interest rate increases to arrest stubborn inflation. Since then, inflation, as measured by the consumer price index, has come down from 8.5% annual growth to 6% currently. However, it is still short of the Fed’s 2% target (read: Inflation Cools Down in February: ETFs to Consider).According to market pricing and Wall Street experts, the Fed will likely approve a quarter-percentage-point interest rate increase this week. A rate increase will come following an emergency lending facility to halt a crisis of confidence in the banking industry.Then again, some high-profile experts project that the Fed will not only halt its aggressive rate hikes amid the banking crisis but also cut rates altogether. Economists at Nomura expect the Fed to reverse its aggressive tightening policy and cut the benchmark interest rate by 25 basis points at its meeting next week amid the banking crisis. The CME FedWatch tool now predicts a 62.7% chance of a 25-bps rate increase and a 37.3% chance of the Fed completely forgoing a rate hike this month.
Banking Crisis
The recent collapse of three banks — Silicon Valley Bank, Silvergate and Signature Bank — has knocked confidence in the financial industry and stoked worries that depositors are pulling their funds and harming bank liquidity. This has stirred memories of the 2008 financial crisis.Republic Bank FRC has also been on a downfall over the past week despite a rescue package with $30 billion in deposits injected by large U.S. banks. Meanwhile, Credit Suisse Group CS plunged to an all-time low after its largest shareholder ruled out any more investment in the bank. Though UBS Group UBS has agreed to acquire the crisis-hit Credit Suisse in an emergency rescue deal, it is unable to lift the sentiments. Shares of Credit Suisse plunged further about 51% in the early trading today.The series of bank failures led to significant rescue efforts by the Federal Deposit Insurance Corp. and the Federal Reserve to prevent a crisis similar to what occurred in 2008. This has drawn a record amount of funds from the Fed’s emergency facilities, including a new funding backstop, and has sparked fears of a broader credit crunch and liquidity strains across the broad market.