A relief rally continues to unfold in global financial markets this morning, with equity indices and bond yields marching higher as tensions in the US and European banking sectors show signs of easing. The dollar is turning in a mixed performance as safe haven currencies retreat.

In prepared comments released ahead of a speech this morning, US Treasury Secretary Janet Yellen said the protections extended to uninsured depositors at Silicon Valley Bank could see use elsewhere. “Our intervention was necessary to protect the broader US banking system,” she said, “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

With fear ebbing and inflation remaining elevated, odds on a quarter-point hike at tomorrow’s Federal Reserve meeting have shot back up in recent days, from less than 55 percent to near 85 percent. A hold isn’t impossible—downside risks have grown materially—yet we think officials will follow long-standing theoretical orthodoxy in choosing to treat financial stability risks and economic risks separately. Further, we believe that a pause could have significantly-negative signalling implications – by choosing not to raise rates, Fed officials could inadvertently telegraph a sense of panic, worsening financial conditions and triggering more widespread risk aversion.

But if a rate increase falls in a forest, and everyone is looking at a dot plot instead, does it really make a sound? If the median terminal rate in the accompanying Statement of Economic Projections lands materially below expectations, markets could rally on an imminent pause. Growth, employment, and inflation forecasts could also prove critical, with sharp downgrades reinforcing expectations for a policy-induced slowdown. We expect the terminal rate to rise to 5.5 percent, with growth projections revised slightly downward, even as employment and inflation are revised upward. We also think the press conference will follow the template laid out by the European Central Bank’s Madame Lagarde, with Jerome Powell drawing a distinction between financial stability-enhancing measures and broader inflation-fighting tools.

Minutes taken during the Reserve Bank of Australia’s last meeting warned interest rate increases could halt at the next meeting. “Members agreed to reconsider the case for a pause at the following meeting,” said the readout, with policymakers “recognizing that pausing would allow additional time to reassess the outlook for the economy”. The Australian dollar fell, with market-implied probabilities suggesting that widespread banking turmoil—which largely came after the March meeting—will push the central bank to the sidelines on April 4, with a cut coming as soon as July.

Today’s US data calendar looks quiet, with existing home sales expected to rise to an annualized 4.2 million in February from 4 million in the prior month.

Canadian headline inflation is seen subsiding to 5.4 percent year-over-year in February, down from 5.9 percent in January as falling gasoline prices put pressure on the overall index. A number of tangible goods prices should slip, but food cost growth will remain relatively elevated, and mortgage rates will continue climbing. The Bank of Canada’s preferred core measures – trim and median – should continue weakening on a three-month moving average basis, keeping the central bank on hold.