Global central bankers on Thursday rolled out what appears to be an emerging effort to firewall the rate increases needed to fight inflation from separate efforts to calm fears about financial stability.
U.S. policymakers will have had more time to digest market developments before their March 21-22 meeting, and build that into their rate decision as well as into longer-term projections for where the economy and monetary policy are heading.
After volatile moves in bond and rate futures markets this week, traders in securities tied to Fed policy expected - at least as of midday Thursday - that the U.S. central bank would move ahead with another quarter-point rate increase.But the messaging around it will matter, and indicate just how heavily policymakers weigh recent events.
Having added, in rapid fashion, a new liquidity program to address some of the issues raised by the collapse of Silicon Valley Bank, changing direction on monetary policy "would concede early defeat on the regulatory front," wrote Benson Durham, head of global policy for Piper Sandler. In crafting their next policy statement officials will have to decide, for example, whether to continue to anticipate the need for "ongoing increases" in the policy interest rate, or to temper that seemingly open-ended commitment with language that indicates rate hikes could pause at any moment, given the new risks.
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