The upcoming rate decision of the Federal Reserve could either confirm that we are in a crisis, or result in an even worse recession than what is currently feared.

Stephania Kovacek
2 mins

The banking crisis makes an economic downturn much more probable and could cause it to begin sooner than originally anticipated, according to an investment head.

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The Federal Reserve is facing a unique challenge as it prepares for a key interest rate decision on Wednesday. Despite high inflation, the banking sector is in crisis and could lead to a preemptive pause in hiking rates – a scenario that could exacerbate a potential recession. Analysts are apprehensive of the outcome, as the implications are yet to be seen.

U.S. Federal Reserve Chair Jerome Powell testifies at a hearing before the United States Senate ... [+] Committee on March 7.Copyright 2023 The Associated Press. All rights reserved
On March 7, Jerome Powell, the Chair of the U.S. Federal Reserve, faced a hearing before the Senate Committee. Powell's testimony before the Committee is expected to provide insight into the Federal Reserve's policy goals and the current state of the economy. The hearing could also provide further insight into the financial decisions the Federal Reserve has made in recent months.

The future of the Federal Reserve's policy on interest rates is still up in the air, but come Wednesday, the public will get a better idea of how the Fed will proceed. Before the recent banking sector crisis, many experts predicted the Fed would increase interest rates by an additional half-point after a quarter-point hike last month. However, after the collapse of SVB, Goldman Sachs said they "no longer expect" the Fed to hike rates this month. Other investment banks, including Nomura, have followed suit, calling for no interest rate hike. Bank of America maintains their prediction of a quarter-point increase, but the Fed's ultimate decision remains to be seen.

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The Federal Reserve is facing a potential crisis as it weighs the decision to raise interest rates next week. According to Donabedian, a financial analyst, failing to raise rates could send a signal that the Fed is aware of a crisis on the horizon. If the Fed avoids a rate hike, it could be interpreted as a confirmation of this crisis. As the Fed deliberates on what to do, the potential consequences of not raising rates become more and more apparent.

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