FirstFT: Banking turmoil complicates Fed decision

All eyes will be on the US Federal Reserve later today as it makes a pivotal decision on whether to press ahead with interest rate rises amid the worst banking turmoil since the 2008 financial crisis.

The collapse of two regional banks since the last meeting of the Federal Open Market Committee has highlighted the risks of the central bank’s aggressive policy to contain inflation to the US financial system while the forced takeover of Credit Suisse by rival UBS underlines the threats to the global banking system.

At the start of the month, Federal Reserve chair Jay Powell had floated the idea of accelerating the pace of rate rises back to a half-point after a slowdown.

Now markets are expecting a quarter-point move or a pause in rises from the current Fed fund rate of 4.50 per cent to 4.75 per cent.

The rate decision will be accompanied by a revised set of projections about the path forward for monetary policy through to 2025, as well as forecasts for growth, unemployment and inflation. Powell will also host a press conference following the conclusion of the two-day meeting.

We will bring you all the reaction to the decision tomorrow but for now here are two pieces that flesh out the dilemma policymakers face.

Here’s what else I’m keeping tabs on today:

• Janet Yellen: The Treasury secretary is scheduled to testify before the Senate Appropriation Committee’s Financial Services and General Government Subcommittee to review the 2024 Treasury budget.

• Results: Pet goods retailer Petco and ecommerce pet company Chewy report earnings. Housebuilder KB Home also releases results.

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Five more top stories

1. UBS is set to enter talks with Michael Klein to unwind First Boston deal, which would have seen the Wall Street dealmaker take control of much of Credit Suisse’s investment bank and revive a historic brand. Read more on why UBS is making the move.

2. First Republic has hired investment bank Lazard to help it explore strategic options after the lender’s shares collapsed in the wake of Silicon Valley Bank’s implosion. Lazard joins JPMorgan Chase and McKinsey in advising the struggling bank.

3. Sterling surged this morning as UK inflation unexpectedly jumped, adding to expectations that the Bank of England will raise interest rates at its policy meeting tomorrow. The pound climbed 0.5 per cent against the dollar to $1.227.

3. Google has launched a rival to OpenAI’s popular ChatGPT as the race to commercialise generative artificial intelligence hots up. The Bard chatbot will provide answers to text-based questions and run separately to Google’s search engine. Read more on Google’s plans for Bard.

4. The IMF has struck a deal with Ukraine to provide a $15.6bn loan and a long-awaited financial lifeline to Kyiv. The agreement was announced as the leaders of China and Russia signed a joined statement of support in Moscow but held back on confirming plans for a crucial pipeline.

The Big Read

Two days after it agreed to spend $3.25bn to rescue Credit Suisse, UBS’s executives have started trying to move past the risks and sell investors the benefits of the shotgun marriage. Here’s how the Swiss bank could reshape its defunct rival’s units in a takeover that will create the world’s fourth-largest bank by assets.

We’re also reading . . . 

Chart of the day

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Nibulon is a pioneering company that helped turn Ukraine into the “breadbasket of the world”. The grain giant is also an example of how the Russian invasion has thwarted the country’s economic potential and undermined its ability to establish itself as a thriving democracy.

Take a break from the news

From the politics of food and the origin of time to the war on Ukraine and the realities of crime fiction, this year’s FT Weekend Oxford Literary Festival offers hundreds of stimulating and thought-provoking events. The 26th edition runs from March 25 to April 2.

Additional contributions by Tee Zhuo and Emily Goldberg