2023-05-03 11:25:00 ET
LIVE COVERAGEThe third Fed meeting is today, and that likely means the stock market is back to its old push-pull trends. That will go for all stocks, including penny stocks . On one hand, investors expecting a 25 basis point rate hike may be surprised to see it not happen. Meanwhile, on the other hand, those expecting a pause could be taken aback by yet another boost in rates.
Underpinning the recent argument for and against this rate decision is the banking crisis. What began with Silicon Valley Bank has ballooned to include 2 more failed US regional banks. It has also resulted in the implosion of regional bank stocks this year.
Banking Crisis Concerns Persist
Concerns regarding the health of these banks have come into question after the most recent, First Republic, saw its assets bought up by JPMorgan Chase earlier this week. Meanwhile, worries have accelerated heading into this next Fed rate decision. Some see it as another pressure point in an already wounded regional banking market.
The former President of the Federal Reserve Bank of Dallas, Robert Kaplan, argued against another hike.
“I’d prefer to do what’s called the hawkish pause, not raise but signal that we are in a tightening stance, because I actually think the banking situation may well be more serious than we currently understand,” Kaplan said in a Bloomberg interview.
Others commenting on the frequent rate hikes made by the Fed have also sounded the alarm. Robert Kiyosaki, the famous author of the Rich Dad Poor Dad series, has argued against tighter monetary policy. He recently Tweeted, “WTF. What The Fed? Why is Fed destroying regional banks across America? Regional banks are heart and soul of economy. Fed via the Repo Market killing regional banks. Is this intentional? Is a depression intentional? WTF is Fed up to? Get $ out of Regionals.”
May 2023 Fed Meeting Statement & Rate Hike Announcement
Heading into the Fed Meeting today and FOMC statement for the May 2023 Fed meeting, the market is leaning toward a 25 basis point hike. However, a look at the last round of Fed minutes from March shows that some members may also expect the potential for a recession. They are also watching the baking industry closely:
“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years. Real GDP growth in 2024 was projected to remain below the staff’s estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential.”
This was the first mention of the “R-word” by the Committee since declaring inflation was simply “transitory” in nature. Furthermore, there was direct mention about banking and financial conditions:
“ If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for both economic activity and inflation, particularly because historical recessions related to financial market problems tend to be more severe and persistent than average recessions .”
The banking crisis was a frequent topic of the Fed’s discussion on rate decisions and potential future hikes. That may be a focus when it comes to Fed Chair Jerome Powell’s press conference on Wednesday afternoon.
May 2023 Fed Meeting, FOMC Statement, & Interest Rate Hike Top 10 Takeaways
This is a developing story, and we will provide live updates leading up to the May 2023 FOMC statement, which will be released at 2 pm ET on May 3rd.