BofA, UBS trim forecast for Fed funds rate amid banking crisis

(Reuters) - Bank of America (BAC) and UBS trimmed their terminal rate expectations on Thursday after the U.S. Federal Reserve hinted that it might pause its rate-hike campaign due to the turmoil in the banking sector.

The Fed's benchmark rate stood in the range of 4.75-5% following a quarter percentage point hike on Wednesday.

While the Fed's move was largely priced in, a minority of market participants had flagged the possibility of a pause in hikes following the collapse of two mid-sized U.S. lenders as well as a Swiss-backed takeover of troubled global bank Credit Suisse.

BofA analysts said the consequent unexpected tightening in bank lending standards could substitute for further hikes.

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

Goldman Sachs, which expected the Fed to pause on Wednesday, maintained 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 even more this year than previously thought, Fed officials said.

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

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

(Reporting by Tom Westbrook and Susan Mathew; Editing by Christopher Cushing and Anil D'Silva)