Goldman Sachs no longer expects the Fed to raise interest rates in March

Goldman Sachs no longer sees an argument for the Federal Reserve to deliver a rate hike at its meeting next week, citing “recent stress” in the financial sector.

Earlier on Sunday, US regulators announced measures to curb contagion fears following the collapse of Silicon Valley Bank. Regulators also closed Signature Bank, citing systemic risk.

“Given the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.

The firm had previously expected the Federal Reserve to raise interest rates by 25 basis points. Last month, the rate-setting Federal Open Market Committee raised the federal funds rate by a quarter of a percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.

Goldman Sachs economists said the package of relief measures announced Sunday stops short of similar measures taken during the 2008 financial crisis. The Treasury Department designated SVB and Signature as systemic risks, while the Fed created a new Bank Term Funding Program to stop institutions affected by market instability following the SVB failure.

“Both of these steps are likely to increase confidence among depositors, although they stop from an FDIC guarantee for uninsured accounts that was implemented in 2008,” they wrote.

“Given the actions announced today, we do not expect short-term actions in Congress to provide assurances,” the economists wrote, adding that they expect the latest moves to “provide significant liquidity to banks facing for deposit outflows.”

Goldman Sachs added that it still expects to see increases of 25 basis points in May, June and July, and reiterated its expectation of a terminal rate of 5.25% to 5.5%.

— CNBC’s Michael Bloom, Jeff Cox contributed to this post