Banking crisis: US releases February inflation and Fed wouldn’t hike rates even if index is high

The report should inflation government report to be released on Tuesday shows that the acceleration in prices it remained chronically high in Februarywhich puts the Federal Reserve in an unusually difficult position.

It had been considered certain that the Fed would at least raise its key interest rate a quarter point when it meets next week.

Many analysts even expected an aggressive half-point increase if this Tuesday’s report for February again points to high inflation.

But that was before two major bank failures over the weekend and a series of emergency measures unveiled by the Fed to try to bolster confidence in the financial system.

With bank stock prices falling on Monday and fears of further financial instability in markets, most economists now expect the Fed to halt its rate hikes next week to avoid causing further instability at a sensitive time for the banking system.

2% inflation target

At the same time, inflation continue far above what the Fed wants, despite the fact that the price index has navigated a downward curve in recent months.

Economists estimated that Tuesday’s report will show that consumer prices increased by 0.4% from January to February, according to a survey of economists by data provider FactSet.

Would be slightly lower than the December increase in January, but still too fast to be consistent Fed’s 2% annual inflation target.

Economists have predicted that, compared with a year ago, headline inflation rose 6% in February, compared with a 6.4% year-over-year jump in January. They also estimated that so-called core prices, which exclude volatile food and energy costs, increased by 5.5% over the previous year. It would be just below January’s annual pace of 5.6%.

Jan Hatzius, chief economist at Goldman Sachs, said Goldman now believes Fed policymakers they will stop their rate hikes next week.

Goldman had previously forecast a quarter-point hike. In a note to clients, Hatzius noted that the Fed, for now, still looks like it more focused on calm banking sector and markets financiers who fight inflation.

“We would be surprised if, just a week after doing everything they could to shore up financial stability, politicians risked undermining their efforts by raising interest rates again,” Hatzius wrote in a separate note on Monday.

Uploads for May

If the Fed stops its rate hikes this month, Hatzius predicted, it probably will it will take them back when it meets in May. Ultimately, he still expects the Fed to raise its key rate, which hits many consumer and business loans, to about 5.4% this year, up from 4.6% today.

The Fed may receive involuntary help in its fight against inflation from the aftermath of the collapse of Silicon Valley Bank and New York-based Signature Bank. In response, many small and medium-sized banks are pulling loans to shore up their finances. A slower lending rate could help cool the economy and curb inflation.

The possibility of a Fed pause underscores the abrupt change of the financial system and the nation’s economy in just one week.

On Tuesday, Fed Chairman Jerome Powell told the Senate Banking Committee that if hiring and inflation continue to rise, the Fed would likely hike rates at its meeting this month. half a point.

This would have marked a re-acceleration in the Fed’s efforts to tighten credit. The central bank had raised its key rate by a quarter of a point in February, half a point in December and three quarters of a point four times before.

ap​