Expectations are high that the Federal Reserve will raise interest rates by a quarter point next week, but the central bank could still swiftly change policy if the financial system becomes stressed. After a wild ride, fed funds futures Thursday reflected more than 80% odds that the central bank would raise rates by 25 basis points next Wednesday. A basis point equals 0.01 of a percentage point. Ethan Harris, head of global economic research at Bank of America, said the firm expects the Fed to hike by a quarter point, but the central bank could change course if necessary. “We have the Fed hiking three 25-basis point hikes, including next week,” he said. “That’s on the assumption that the regulatory efforts to support the banking system are effective and that the further negative news is limited, so the Fed can shift its focus back to inflation. It’s a close call for next week because it really depends on what the markets are doing when the Fed meets.” On Thursday, stocks closed higher, with shares of regional banks climbing. Treasury yields also rose as investors learned that a consortium of 11 banks agreed to deposit $30 billion into First Republic Bank . Participating institutions include JPMorgan , Citigroup , PNC and Truist. Earlier, the European Central Bank went ahead with a half-point rate hike . Concerns about the health of Credit Suisse were also calmed after t he Swiss National Bank Wednesday said the bank is well capitalized and that it would provide liquidity if needed. A fluid situation Worries about bank contagion following the failure of Silicon Valley Bank drove buyers into Treasurys and pounded risk assets, like stocks and oil. The 2-year Treasury yield has traded with big swings since then. The yield, which most reflects Fed policy, rose to 4.17% in late trading Thursday, from a low below 3.9% in morning trading. Yields move opposite price. Market odds for a Federal Reserve rate hike rose sharply Thursday, up from 50% Wednesday. Those expectations have swung wildly. They were at 50% after big swings Wednesday, but there had also been traders who expected a half percentage point hike prior to the failure of Silicon Valley Bank. As news came out on First Republic, the odds were at one point above 85% Thursday afternoon before falling back to closer to 80%. Economists have varying views on how the central bank will respond to recent U.S. bank failures and worries about Credit Suisse. JPMorgan economists expect the Fed to raise rates next…
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