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Goldman Sachs Revises Interest Rate Expectations as US Futures Surge on Regulatory Measures to Address Banking Risks

US financial regulators have implemented new measures aimed at addressing risks in the banking sector, which has caused a positive response from investors in pre-market trading on Monday.

The measures include the Federal Deposit Insurance Corporation (FDIC) taking swift action to protect uninsured depositors in two bank resolutions, Silicon Valley Bank and Signature Bank (NASDAQ:SBNY). Additionally, the Fed and Treasury have announced the Bank Term Funding Program (BTFP), which will provide extra liquidity to banks facing deposit outflows.

According to Goldman Sachs economist, “We expect these measures to provide substantial liquidity to banks facing deposit outflows and to improve confidence among depositors.”

However, some uncertainty remains about the path forward, with Goldman Sachs no longer expecting the Fed to increase rates at next week’s meeting. The bank sees “considerable uncertainty about the path beyond March.” Nevertheless, Goldman Sachs has maintained its expectation that the Federal Open Market Committee (FOMC) will deliver 25bp hikes in May, June, and July, and now expects a 5.25-5.5% terminal rate.

Despite this uncertainty, investors have reacted positively to the news, with S&P 500 futures up by 1.6% in pre-market trading, and Nasdaq and Dow Jones futures trading 1.7% and 1.15% higher, respectively. This suggests that investors are optimistic about the future prospects of the US banking sector, and are responding positively to the regulatory measures taken by US authorities.

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