US inflation data comes at challenging time for Fed amid SVB fallout

US inflation is expected to remain high enough to further complicate the path ahead for the Federal Reserve as it grapples with three bank failures and broader concerns about financial stability.

The consumer price index is forecast to rise 6% year-on-year in February, according to a consensus estimate compiled by Reuters, which means an increase of 0.4% from the previous month. This is a step down from the annual rate of 6.4 percent recorded in January, although it is still higher.

Excluding volatile food and energy prices, the “core” consumer price index is expected to rise another 0.4 percent in February from the previous month, marking a 5.5 percent annual gain. In January, the core consumer price index stood at 5.6% year on year.

The data, due to be released by the Bureau of Labor Statistics at 8:30 am ET Tuesday, comes at a difficult time for the Fed, which was forced to step in Sunday night to contain the effects of the sudden collapse. Bank of Silicon Valley happy friday

After a hectic weekend during which no buyer emerged to absorb the beleaguered technology lender, which at the time had been turned over to the Federal Deposit Insurance Corporation, government agencies rushed to piece together rescue package before Asian markets open on Monday.

Not only were deposits guaranteed in full to account holders at SVB and Signature Bank, another lender that was shut down by regulators on Sunday, but the central bank introduced a new lending facility to ensure “banks have the capacity to meet the needs of all their clients.” contributors.”

The so-called Bank Term Financing Program, which is backed by $25 billion of Treasury Departmentoffers loans for up to one year to lenders who pledge collateral, including U.S. Treasury bonds and other “eligible assets” that will be valued at face value.

Despite these measures, shares of First Republic and other regional banks are perceived as vulnerable after the collapse of the SVB. fell sharply happy monday

Against this background, investors and economists quickly changed their view of the future for the Fed, which only last week was mulling over the idea of ‚Äč‚Äčaccelerating the pace of interest rate hikes and opted for a half-point rate hike at its March 21-22 meeting.

Speaking to Congress earlier this month, ahead of the banking crisis, Chairman Jay Powell said the Fed would react more aggressively to rate hikes if the data showed a sustained recovery in economic momentum. He also warned at the time that the end point of the Fed’s monetary tightening campaign, known as the final rate, was likely to be above the 5.1 percent level that most officials set at the end of 2022.

The inflation report is the latest in a series of important data releases, Powell said he will be watching to determine the size of the next rate hike. The other was the February jobs report, which showed that employers added 311,000 jobs last month, slower than previous surge figures but still well above what officials say is in line with easing price pressures.

The Fed has already scaled back its tightening to a more traditional quarter-point pace in February, after several half-point and three-quarter-point moves last year.

But following the bank failure, which also included the voluntary liquidation of cryptocurrency-focused lender Silvergate, last week, Wall Street was divided over whether the Fed would go ahead with another quarter-point rate hike or not raise it at all. Expectations for the terminal rate, which at some point exceeded 5.5 percent, were also revised downward.

In just one year, the central bank raised its benchmark rate from near zero to almost 4.75%, a historically aggressive pace that some say also contributed in part to the collapse of the SVB, given its holdings in long-term fixed-rate bonds and its lack of protection against rate hikes.