On March 20, analysts at the Monetary Policy Analysis Company, chaired by former Federal Reserve Governor Larry Meyer, said the move by the Federal Reserve and other major central banks to provide more dollar liquidity through dollar swap lines shows that people are concerned about the contagion of the financial crisis. Worries have grown, which could further wobble market expectations for a rate hike by the Federal Reserve on Thursday.
Decisive joint central bank action would bring a sense of security, but it would also expose a great deal of anxiety.
The European Central Bank’s 50 basis point rate hike last week and its avoidance of forward guidance may have provided the Fed with a template for balancing monetary tightening with financial easing.
In this case, the Fed’s possible actions include pausing rate hikes, but there is also the possibility of restarting rate hikes, and continuing to raise rates but signaling that terminal rates will be lower than previously expected.