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After a week of chaos in the banking industry, including the collapse of Silicon Valley Bank (SIVB) and Signature Bank (SBNY), and the forced marriage of UBS and Credit Suisse, investors' focus has now shifted to the Federal Reserve. Fed officials are set to convene this week for one of its most uncertain policy meetings of the year, with the central bank now at a crossroads between fighting inflation and maintaining financial stability. "They really have to balance out this inflation fighting with stability," Meera Pandit, JPMorgan Asset Management Global Market Strategist, tells Yahoo Finance. "There's a lot of evidence that the Fed should start winding down it's Fed hiking cycle." Pandit lays out evidence that a Fed pause is on the table: February's Consumer Price Index gains, wage growth, consumer expectations of inflation, tightening financial conditions, and banking woes show that it "makes sense for the Fed to get closer and closer towards a pause," she says. Key Video Moments 00:00:01: What markets are pricing in 00:00:15: Fed balancing inflation vs. financial stability 00:00:43: Evidence of a future Fed pause
Expectations on the Fed’s next move for interest rates have been a mixed bag in recent weeks. From bets on a 50-basis point hike, to no hike at all, to a view of a 25 basis point rate hike. The expectation whiplash kicked into high gear after the sudden bank failures- sending a wave stress throughout the banking system. “The Fed is going to have to be really careful about forward guidance here and potentially not give a whole lot of it because they're not omnipotent. They don't know what's coming down the pike,” says Chris Konstantinos, RiverFront Investment Group Chief Investment Strategist. Markets will be eager to see the Fed’s tone as they face tensions on financial stability and the risk of inflation. “They have to strike a balance. I think if their message is too far towards price stability, or to much towards financial stability, or inflation stability- too much in either direction- I think is going to be tough for the market to take,“ says Konstantinos Yahoo! Finance's Julie Hyman and Brad Smith speak with Chris Konstantinos in a full interview here. Key video moments: 00:00:14 Fed guidance 00:00:52 Fed striking a balance 00:01:21 Rate hike pause
Investors have been nervous about the brewing crisis in the banking sector in recent days, and with several bank stocks included in the Dow Jones Industrial Average (DJINDICES: ^DJI), it's no surprise that the venerable market benchmark has seen substantial declines in the past couple of weeks. It also wasn't surprising to see Wall Street bank stock giant Goldman Sachs (NYSE: GS) playing a pivotal role in lifting the Dow, given its high share price and the price-weighted nature of how the Dow gets calculated.