BofA, UBS cut forecast for fed funds rate amid banking crisis By Reuters

(Reuters) – Bank of America (NYSE:) and UBS cut their terminal rate expectations on Thursday after the U.S. Federal Reserve hinted it might pause its rate-raising campaign amid turmoil in the banking sector .

The Fed’s benchmark rate was in the 4.75-5% range after raising a quarter of a percentage point on Wednesday.

While the Fed’s move was largely priced in, a minority of market participants had signaled the possibility of a pause in hikes following the collapse of two midsize US lenders, as well as the Swiss-backed takeover of the bank. troubled global Credit Suisse.

BofA analysts said the resulting unexpected tightening of bank lending standards could replace further hikes.

Both BofA and UBS no longer expect an interest rate hike in June and expect the fed funds rate to peak in May at 5-5.25% from 5.25-5.5%.

Goldman Sachs (NYSE:), which had expected the Fed to pause on Wednesday, kept its terminal rate forecast in the 5.25-5.5% range, but now sees rates peaking in June instead of July.

The banking crisis may trigger a credit crunch with “significant” implications for the economy, which could slow further this year than previously thought, Fed officials said.

Money markets, which priced in a terminal rate close to 6% in September as early as this month, now see the rate peaking at 4.9% in May.

(This story has been corrected to change the terminal rate forecast range in paragraph 5)