A high-stakes inflation report due Tuesday is expected to show that price pressures within the economy have remained strong over the past month despite an aggressive Federal Reserve rate-hiking campaign.
Economists expect the consumer price index, which measures a basket of goods including gasoline, health care, groceries and rent, to show monthly prices rose 0.4% in February, down slightly from a 0.5% rise in the month corresponds to January. on an annual basis, Inflation is forecast up 6% yoy, down from 6.4% in the previous month and peaking at 9.1% in June.
Excluding the more volatile food and energy readings, prices are expected to rise 0.4% or 5.5% annually, suggesting that underlying inflationary pressures remain strong.
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The report is the last before the federal reserveThe next monetary policy meeting on March 21-22 will have major implications for the US Federal Reserve, which is tightening monetary policy at the fastest rate in decades to quell runaway inflation.
Officials have already approved eight simple rate hikes and lifted the federal funds rate to a range of 4.5% to 4.75%, well into restrictive levels. Politicians have indicated this in recent weeks Interest rates may need to go higher than previously expected given hotter than expected economic data.
However, rate hike expectations faltered after Friday’s stunning Silicon Valley bank implosion rocked global markets and sparked fears of a broader financial crisis.
The likelihood of the Fed pausing its rate hike campaign next week rose to 28% Monday, up from 0% a day ago, according to data from CME Group’s FedWatch tool. Meanwhile, around 71% of traders expect a typical quarter-point hike.
“Investors are struggling to gauge the direction of Fed policy as the banking industry’s struggles contrast with stubbornly high inflation,” said Mark Hackett, head of investment research at Nationwide. “It is unclear how the disruption in the banking system could affect this pathway.”
Many economists expect the Fed to hike rates again next week, albeit more slowly and cautiously than without the collapse of SVB — a key lender to tech startups and venture capital firms. That’s partly because federal regulators stepped in on Sunday night to prop up the banking system and protect all deposits with the SVB.
“This isn’t like the credit crunch of the Great Financial Crisis,” said Jeffrey Roach, chief economist at LPL Financial. “Therefore, investors should not expect the Fed to shift its focus to curbing inflation. The Fed is likely to hike another 25 basis points at the next meeting. However, rising risks to the economy could likely prompt the Fed to halt rate hikes for daylight saving time.”
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The Fed also monitors other economic indicators, including job growth and consumer inflation expectations. In another welcome sign for the central bank, last week’s February jobs report gave some signs of a rapid slowdown in wage growth, although job growth remained solid.