Neither are good options .
US inflation rises faster than expected, pressuring Federal Reserve amid market turmoil
Consumer prices rise as Fed weighs next move amid Silicon Valley Bank fallout
The inflation increase complicates the Federal Reserve’s next move amid market turmoil.
Underlying US consumer prices rose in February by the most in five months, an acceleration that leaves the Federal Reserve in a tough position as it tries to thwart still-rapid inflation without adding to the turmoil in the banking sector.
The consumer price index, excluding food and energy, increased 0.5 per cent last month and 5.5 per cent from a year earlier, according to Bureau of Labor Statistics data out Tuesday.
Economists see the gauge – known as the core CPI – as a better indicator of underlying inflation than the headline measure. The overall CPI climbed 0.4 per cent in February and 6per cent from a year earlier.
The median estimates in a Bloomberg survey of economists called for a 0.4 per cent monthly advance in the overall and core CPI measures.
The figures reaffirm that the Fed’s quest to tame inflation will be a bumpy one as the economy has largely proven resilient to a year’s worth of interest-rate hikes so far.
The challenge for the Fed now is how to prioritise inflation that is still far too high with growing financial stability risks in the unravelling of Silicon Valley Bank.
Just before the crisis came to fruition last week, chairman Jerome Powell had opened the door to re-accelerating the pace of rate hikes, but many economists now say the central bank will either stick with a smaller increase or pause entirely when it meets next week. One firm even says a rate cut could be in store.
Two-year Treasury yields, which are sensitive to Fed policy, rose to session highs while stock futures and the dollar fluctuated. Swaps traders maintained bets that the Fed will lift interest rates by 25 basis points at its meeting this month. – Bloomberg
SVB (and Kwartang’s little experiment) has taught us that inflation beating interest rate hikes come with a cost, the instability of financial institutions overexposed in “safe” bonds. So, a tricky balance has just become trickier.
Inflation is the current number one enemy but how many other banks have a dirty little bond loss secrets hidden away?
Inflation driven by the war in Ukraine continues to clobber the West, and yet none of our leaders are talking about peace. This is madness and it could easily get a lot worse. It’ll all end up anyway with Russia keeping Crimea and probably a chunk of Donbas too with innumerable lives lost and ruined and wholesale destruction in the meantime.