With the Federal Open Market Committee convening on Wednesday and the recent financial troubles facing the U.S. banking system, White House press secretary Karine Jean-Pierre said President Joe Biden has “confidence” in Federal Reserve chair Jerome Powell. Meanwhile, according to the CME Group’s Fedwatch tool, the target rate probability suggests the Fed will raise the federal funds rate by 25 basis points (bps) this week. There’s also a 26.9% chance the U.S. central bank won’t raise the rate this month.

Market Laser-Focused on Upcoming Fed Meeting; Biden Administration Confident in Powell’s Leadership

It has been a tumultuous week in the U.S. banking industry as three major banks collapsed, and the Federal Reserve announced that it would fully bail out two of them. Additionally, the U.S. central bank created the Bank Term Funding Program (BTFP) to assist failed banks and their depositors. Moreover, the Fed loaned the banks $164.8 billion to strengthen liquidity and collaborated on March 19 with five other major central banks to boost U.S. dollar liquidity.

To make matters worse, a recently published paper indicates that roughly 186 U.S. banks are grappling with the same problems as Silicon Valley Bank, and First Republic Bank’s stock plummeted on March 20, losing more than 40% of its value in a single day. In the meantime, on March 22, the Federal Open Market Committee (FOMC) and Fed chair Jerome Powell will determine the fate of the federal funds rate.

Prior to the banking industry fallout, the U.S. central bank had been raising the benchmark rate rapidly every month since this time last year, following the significant monetary expansion in response to the Covid-19 pandemic, which saw the institution keeping rates suppressed at zero. When inflation began to soar, Fed members, including chair Powell, referred to it as “transitory” and predicted it wouldn’t last.

However, the Fed’s swift monetary tightening in response to inflation has caused significant issues with long-duration Treasury notes. During the White House press briefing on Monday, press secretary Karine Jean-Pierre was asked about president Biden’s opinion of the Fed chair’s leadership and whether Powell might be replaced as the Fed’s head. “No, not at all. The president has confidence in Jerome Powell,” Jean-Pierre stated.

Eight days prior, on March 13, president Biden had reassured Americans that the U.S. banking system was secure. “Americans can rest assured that our banking system is safe,” he said. “Your deposits are secure. Let me also assure you that we will not stop here. We will do whatever is necessary,” the U.S. president added.

Additionally, market strategists and economists are curious about the Fed’s plans for Wednesday, with some speculating that the central bank will be dovish. For example, last week, Goldman Sachs chief economist Jan Hatzius revised the bank’s U.S. federal funds rate forecast and stated that he does not expect a hike on Wednesday.

Other market analysts anticipate that the Fed will raise the rate by 25 basis points (bps) this week. At the time of writing, the CME Group Fedwatch tool indicates a 73.1% chance that the 25bps rate increase will occur. The Fedwatch tool also indicates that 26.9% of analysts predict no rate hike this month.

What do you think the Fed’s decision will be this coming Wednesday? Share your thoughts about this subject in the comments section below.

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After UBS acquired Credit Suisse and close to a dozen financial institutions injected $30 billion into First Republic Bank four days ago, S&P Global downgraded First Republic’s shares to junk status on Sunday. Investors are concerned that the cash infusion from 11 major financial institutions may not address the bank’s liquidity issues. First Republic’s shares fell more than 15% on Monday morning when Wall Street opened and by 1:15 p.m. (ET), the stock was down more than 25%.

First Republic Bank Shares Slide 25% Lower Despite $30B Cash Infusion From 11 Lenders Last Week

At around 1:15 p.m. Eastern Time on Monday, March 20, 2023, shares of San Francisco-based First Republic Bank (NYSE: FRC) were down more than 25% against the U.S. dollar. The commercial bank and wealth management services provider recently received $30 billion from 11 major banks, including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, BNY Mellon, PNC Bank, State Street, Truist Bank, and US Bank, on March 16.

However, the cash infusion has not helped First Republic as S&P Global reduced the bank’s stock (FRC) to junk status, citing concerns that the recent help from 11 banks may not alleviate First Republic’s problems. This was the second downgrade of FRC in less than a week. First Republic has attempted to raise capital by issuing more shares and seeking investment from private equity firms and smaller banks.

This is First Republic’s second attempt to raise capital since March 10, and then it received the deposit injection from the major lenders six days later. CNN contributor Allison Morrow was told that First Republic is facing a fate similar to that of Silicon Valley Bank (SVB) due to being a “Bay Area-based lender with a deep-pocketed client base.” Patricia McCoy, a law professor at Boston College, told Morrow that depositors are “particularly trigger-prone.”

“They’re sophisticated, they know they have other options, and they have mechanisms in place to move money quickly,” McCoy added.

At 1:15 p.m. (ET) on March 20, 2023, First Republic’s shares are down more than 25% this afternoon and trading for just above $17 per share. The bank’s shares reached an all-time intraday low while other banks managed to weather the storm on Monday following the Credit Suisse buyout.

What do you think about S&P Global downgrading First Republic Bank’s stock to junk status on Sunday? Share your thoughts about this subject in the comments section below.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

On Sunday evening, March 19, 2023, at 5:00 p.m. Eastern Time, the U.S. Federal Reserve, along with several central banks including the Bank of England, Bank of Canada, Bank of Japan, the European Central Bank, and the Swiss National Bank, announced a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements. The announcement followed a banking crisis that began with the collapse of three U.S. banks and spread internationally.

Turmoil in Banking Industry Leads to Coordinated Action to Enhance Liquidity

Before Wall Street opened on Monday and ahead of the next Federal Reserve meeting, the U.S. central bank, along with five other major central banks, announced decisive action to add liquidity to the financial system. The participating banks included the Bank of England, Bank of Canada, Bank of Japan, Swiss National Bank, and the European Central Bank (ECB). In fact, all participating central banks published similar press releases regarding the new measures.

“To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily,” the Federal Reserve announcement details. “These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April.”

so central banks literally said a form of –

“Steady lads, deploying more capital”

— sol poor | $BONK enjoyeerr | 🔥💃 (@DeChDAO) March 20, 2023

The central banks’ latest plan is a popular topic of conversation on social media and forums, as many believe that monetary tightening policies are over. Arthur Hayes, the founder of Bitmex, tweeted about the situation, saying, It’s All Over!!! This [is] what happens when no one wants to hold USD in banks that can’t borrow from the Fed using #banktermfundingprogram. Not sure how the Fed can hike when it’s handing out dollars to its peers. Cut Cut Cut.”

From Tightening to Easing

The turmoil in the banking industry began after the fall of Silicon Valley Bank and Signature Bank. The U.S. Federal Reserve announced a plan to make all uninsured depositors of both institutions whole. Shortly after, the Swiss banking giant Credit Suisse showed severe signs of weakness and borrowed 50 billion francs from the Swiss National Bank. Swiss authorities then orchestrated an emergency takeover of Credit Suisse by UBS, which acquired the financial giant for 3 billion Swiss francs ($3.2 billion).

From SVB, to medium US bank (First Republic), to global systemic bank (CS), to all central banks coordinating…

This escalated fast

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— Mid (@Elmidou) March 20, 2023

Moreover, 11 large U.S. lenders injected $30 billion into First Republic Bank last week. The latest plan by the six central banks could potentially lead to monetary expansion, credit bubbles, and more bailouts. By providing liquidity to banks and markets, the major central banks are endorsing support for the creation of credit and money within the economy. The decision by the U.S. Federal Reserve and other central banks to increase the frequency of 7-day maturity operations from weekly to daily can safely be considered monetary easing.

“The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the six central banks detail in the announcement. Moreover, after Switzerland resolved the Credit Suisse problem with UBS, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen issued a joint statement saying:

“We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation.”

What do you think the long-term effects of the central banks’ decision to increase the frequency of 7-day maturity operations will be on the global economy? Share your thoughts in the comments section below.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.