The US government's
inflation
report to be released on Tuesday is expected to show the acceleration in prices
in February remained chronically high
, putting the Federal Reserve in an unusually difficult position.
It had been considered certain that the Fed would raise its benchmark interest rate by at least
a quarter point
when it meets next week.
Many analysts were even expecting
an aggressive half - point rise
if Tuesday 's report for February
points to high inflation again
.
The price index in the United States continues to be high in relation to the Fed's target of 2% per year.
photo: AP
But that was before the two big bank failures over the weekend and a series of emergency measures the Fed unveiled to try to bolster confidence in the financial system.
With bank share prices falling on Monday and fears of further financial instability in the markets, most economists now expect the Fed to halt its rate hikes next week to avoid causing more instability at a sensitive time for the banking system.
A target of 2% inflation
At the same time, inflation
continues to be well above
what the Fed wants, despite the fact that the price index has been surfing a downward curve in recent months.
Economists have estimated that Tuesday's report will show consumer prices
rose 0.4%
from January to February, according to a survey of economists by data provider FactSet.
That would be
slightly less than the December
-January increase, but still too fast to be consistent with
the Fed's 2% annual inflation target.
Economists have forecast that, compared with a year ago,
headline inflation rose 6% in February
, up from a year-on-year jump of 6.4% in January.
They have also estimated that so-called core prices, which exclude the volatile costs of food and energy, rose 5.5% from a year earlier.
That would be just slightly below January's annual pace of 5.6%.
Jan Hatzius, chief economist at Goldman Sachs, said Goldman now believes Fed policymakers
will halt their rate hikes next week
.
Goldman had previously forecast a quarter-point rise.
In a note to clients, Hatzius noted that the Fed, for now, seems even
more focused on calming the banking sector and financial markets
than fighting inflation.
“We would be surprised if, just a week after doing all they could to support financial stability, policymakers risked undermining their efforts by raising interest rates again,” Hatzius wrote in a separate note Monday.
Uploads for May
If the Fed halts its rate hikes this month, Hatzius predicted, it will likely
resume them when it meets in May.
Ultimately, he still expects the Fed to raise its key rate, which affects many consumer and business loans, to around 5.4% this year, from 4.6% today.
The Fed may get some unintended help in its fight against inflation from the fallout from the collapse of Silicon Valley Bank and New York-based Signature Bank.
In response, many small and medium-sized banks are withdrawing loans to shore up their finances.
A slower rate of lending could help cool the economy and curb inflation.
The possibility of a Fed pause underscores
the wild turnaround in the
nation's financial system and economy in just one week.
Last Tuesday, Fed Chairman Jerome Powell had told the Senate Banking Committee that if hiring and inflation continued to rise, the Fed would probably raise rates at this month's meeting by half a point
.
That would have marked a reacceleration in the Fed's efforts to tighten credit.
The central bank had raised its benchmark rate by a quarter point in February, half a point in December and three quarters of a point four times before.
By Christopher Rugaber, Associated Press
ap
look too
US Banking Crisis: The Collapse of Sweet Silver
Banking crisis in the United States: Europe fears contagion from Silicon Valley Bank