Daily News 19

Tag: Monetary policy

  • Wall Street Banks Revise Forecasts for Fed’s Next Rate Move

    Wall Street Banks Revise Forecasts for Fed’s Next Rate Move

    Key Highlights

    • Major Wall Street banks have shifted to more hawkish rate forecasts following the Federal Reserve’s September 25 basis point hike, with the median analyst prediction now pointing to one additional 25 basis point increase.
    • Forecasts are split on timing: NatWest, Swedbank, and Goldman Sachs see an October hike, while Standard Chartered and Commerzbank target December; Morgan Stanley projects two more hikes by Q1 2027.
    • A notable divide persists: ING, SEB, and Citi maintain the September move was the cycle peak, while JPMorgan, Barclays, UBS, and others expect only 25 basis points more, versus 50 basis points from Bank of America, Deutsche Bank, and others.

    Wall Street Recalibrates Fed Rate Path After September Meeting

    The Federal Reserve’s September policy meeting, which delivered a widely anticipated 25 basis point rate increase, has triggered a broad reassessment across Wall Street’s leading financial institutions. Analysts at Goldman Sachs, Morgan Stanley, NatWest, Rabobank, Swedbank, and Commerzbank have all shifted their forward guidance in a more hawkish direction, reflecting the central bank’s signaling that inflation remains sticky enough to warrant further tightening. While the consensus has coalesced around at least one more rate hike, the dispersion in timing and terminal rate expectations underscores deep uncertainty about the trajectory of monetary policy into 2024 and beyond.

    Divergent Timing: October Versus December for Next Move

    The most immediate point of contention among strategists is the calendar. NatWest and Swedbank have penciled in a 25 basis point increase for the Federal Open Market Committee’s October gathering, a view now shared by Goldman Sachs, which also pushed out its projected rate cuts to September and December 2027 and March 2028. Standard Chartered and Commerzbank, by contrast, have slotted their additional hike into the December meeting. Morgan Stanley stands out with a more aggressive call, forecasting a cumulative 50 basis points of further tightening—two quarter-point moves—by the first quarter of 2027. The median of analyst predictions compiled across the Street aligns with a single 25 basis point increase from current levels, but the range of projected meeting dates spans October through December.

    Terminal Rate Split: 25 Versus 50 Basis Points of Additional Tightening

    Beyond timing, firms are divided on the total magnitude of remaining hikes. A cohort including ANZ, Bank of America, RBC, TD Securities, BNP Paribas, Deutsche Bank, Morgan Stanley, and Société Générale anticipates a full 50 basis points of additional tightening. Another group—JPMorgan Chase, Barclays, UBS, Goldman Sachs, and Standard Chartered—sees the cycle ending after just 25 more basis points. On the dovish fringe, ING, SEB, and Citigroup argue the September increase marked the terminal rate, projecting no further hikes in the near term. This fragmentation has eroded the previously dominant “one-and-done” narrative, shifting market focus squarely onto whether the next move arrives in October or December.

    Why This Matters

    The recalibration of Wall Street’s rate forecasts carries direct implications for asset allocation, corporate financing costs, and global capital flows. A higher-for-longer rate environment pressures equity valuations, particularly in rate-sensitive sectors like real estate and utilities, while supporting the U.S. dollar and lifting yields across the Treasury curve. For businesses, the widened spread between the 25 and 50 basis point camps translates into material uncertainty around the cost of capital for 2024 investment planning. Policymakers at the Fed will closely monitor financial conditions indices as they weigh the lagged effects of 525 basis points of cumulative tightening since March 2022 against resilient labor markets and persistent core inflation. The next Critical Consumer Price Index and employment reports ahead of the November 1 FOMC meeting will likely determine whether the October hike scenario gains traction or the December camp prevails.

    Frequently Asked Questions

    What is the current median Wall Street forecast for additional Fed rate hikes?
    The median analyst prediction points to one more 25 basis point increase from current levels, though institutions are split between October and December for the timing.
    Which major banks believe the Fed has already finished hiking rates?
    ING, SEB, and Citigroup maintain that the September 25 basis point hike was the final move in the current tightening cycle and do not expect another increase in the near future.
    How have Goldman Sachs and Morgan Stanley updated their rate projections?
    Goldman Sachs now expects a 25 basis point hike in October and has delayed its forecast for rate cuts to late 2027 and early 2028. Morgan Stanley projects two additional 25 basis point hikes totaling 50 basis points by the first quarter of 2027.
  • Next currency crisis may be harder to contain due to stablecoins, New York Fed report finds

    Next currency crisis may be harder to contain due to stablecoins, New York Fed report finds

    A new study from the Federal Reserve Bank of New York reveals that dollar-pegged stablecoins flow more aggressively into digital wallets linked to countries undergoing currency or banking crises, highlighting a growing challenge for central banks attempting to manage capital flight.

    Crisis-Linked Wallets Show Higher Stablecoin Receipts

    Researchers Pablo Azar, Maryam Farboodi, and Nish Sinha found that wallets associated with nations experiencing financial distress were 1.8% more likely to receive dollar stablecoins during the week a crisis began. Receipt volumes across these wallets also increased significantly during those periods, according to an August staff paper published by the New York Fed.

    The analysis covered nine crisis episodes across eight countries between 2021 and 2025, including monetary disruptions, banking restrictions, sanctions, and devaluations affecting Argentina, Egypt, Iran, Myanmar, Nigeria, Russia, Turkey, and the United Kingdom.

    Methodology: Linking On-Chain Activity to Country Signals

    To trace stablecoin flows, the researchers linked Ethereum Name Service (ENS) registrations carrying country indicators—such as languages, scripts, and national identifiers—with transfer histories for 19 major dollar-pegged stablecoins.

    During crisis weeks, tagged wallets recorded both a higher probability of receiving stablecoins and larger receipt volumes. A separate specification found no significant increase in the two weeks before the shocks, while the probability of receiving stablecoins rose 1.9% during the crisis week itself.

    Sending activity increased later, with wallets becoming 1.3% more likely to send stablecoins two weeks after the crisis began. The sequence supports the researchers’ argument that demand for blockchain-based dollars rises when confidence in domestic financial arrangements comes under pressure.

    Data Limitations and Scope

    The dataset does not represent every resident or crypto wallet in the countries studied. Its roughly 4.5 million observations are wallet-event-week records, and the sample focuses on wallet-country pairs that received stablecoins at some point within a 53-week window around each crisis.

    The result therefore captures a change in behavior among wallets already connected to stablecoin activity rather than showing that stablecoin adoption rose by 1.8% across an entire national population.

    Stablecoins Complicate the Capital-Control Playbook

    The findings feed directly into a longstanding constraint on monetary policy described by the Mundell-Fleming framework: countries cannot simultaneously maintain a fixed exchange rate, unrestricted capital mobility, and independent control over domestic interest rates.

    Governments seeking to protect a currency while retaining monetary autonomy have traditionally restricted capital movement through banks and other regulated intermediaries. The New York Fed researchers model stablecoins as weakening that enforcement channel.

    A household facing restrictions on buying or transferring dollars through its bank may instead receive dollar-denominated tokens into a blockchain wallet. As access to those rails expands, the government must devote more resources to enforcement or allow more of the pressure to emerge through currency depreciation or domestic interest rates.

    The paper does not establish that stablecoins caused particular currencies to weaken during the nine episodes. Instead, the observed wallet activity supports the model’s central assumption that financial stress encourages stablecoin adoption. Its broader monetary-policy consequences remain theoretical.

    Centralized Issuers and Regulated Exchanges Remain Control Points

    Governments retain significant points of control. Major dollar tokens such as USDT and USDC are issued by centralized companies that can freeze addresses, while regulated exchanges can be required to restrict transactions or identify customers.

    Those powers shift enforcement away from a country’s banking system toward a wider network of issuers, exchanges, and blockchain addresses. Transfers between self-custodied wallets can leave governments with fewer immediate domestic chokepoints even when issuers retain the ability to intervene at other stages.

    Market Growth Amplifies Policy Challenge

    The policy challenge becomes more consequential as stablecoins expand from a niche crypto product into a global dollar-payment network. The market has already grown beyond $300 billion and is expected to reach trillions of dollars before the end of the decade.

    Blockchain analysis firm Chainalysis projects an even steeper rise in activity, estimating that adjusted stablecoin transaction volume could reach $719 trillion by 2035 through organic growth alone and approach $1.5 quadrillion if broader macro and adoption trends accelerate usage.

    That growth would increase the number of routes available to households seeking dollar exposure during periods of domestic financial stress, but it would not put stablecoins entirely beyond government reach.

    Regulatory Warnings Highlight Enforcement Gaps

    Federal Reserve Vice Chair for Supervision Michael Barr warned in June that U.S. stablecoin legislation left an illicit-finance vulnerability around secondary-market transfers involving unhosted wallets.

    The Bank for International Settlements (BIS) has identified a similar problem for monetary policy, arguing that stablecoin dollarization can threaten monetary sovereignty while restrictions may prove less effective when bearer-like tokens circulate through self-custodied wallets.

    That creates a more fragmented enforcement map. Governments can exert substantial control over banks, stablecoin issuers, and regulated trading venues, but may have less visibility or immediate reach when dollar tokens move between private wallets without returning to those intermediaries.

    Stablecoins Becoming a Macroeconomic Constraint

    The distinction becomes particularly important during a currency crisis, when demand for an alternative store of value and payment rail can rise just as authorities try to restrict capital movement.

    The New York Fed paper suggests that this choice of financial infrastructure is becoming part of the macroeconomic constraint itself. As stablecoin networks grow, effective capital mobility increasingly depends on both the controls governments impose and the blockchain rails households can still access.

    At the scale projected for the next decade, that could turn stablecoins from an alternative payment mechanism into a material constraint on how governments defend currencies during periods of financial stress.