By Christopher Rugaber -
The Associated Press
The prices of goods and services in the United States rose four tenths in February compared to the previous month, according to data published Tuesday by the Bureau of Labor Statistics.
The rate compared to the previous year, however, fell from 6.4% in January to 6% (because it is compared against the strong increases in 2022), thus reflecting a slowdown, like the previous month;
but it is still well above the levels desired by the Federal Reserve (Fed), which next week must decide on a new rise in interest rates.
His decision is complicated by the bankruptcy of banks in recent days and the measures approved to avoid a crisis.
An employee sorts goods at a Walmart supermarket in North Bergen, New Jersey, on February 9, 2023. Eduardo Munoz Alvarez / AP
The failure of Silicon Valley Bank and Signature Bank last weekend forced the Fed to take urgent decisions to maintain confidence in the US banking system and avoid the contagion effect, which may alter its next moves regarding its strategy to control inflation.
After bank prices plunged on Monday and fears of further financial instability in markets grew, most economists now expect the Fed to suspend rate hikes to avoid causing more instability at this sensitive time.
Economists were correct in their estimates that consumer prices would have grown four-tenths of a point from January to February, according to a survey by data provider FactSet.
This increase is slightly less than that registered in December and January, although too fast to meet the 2% target set by the Fed.
[Government announces that Silicon Valley Bank clients will be able to access their money after bank collapse causes panic]
Jan Hatzius, an economist at Goldman Sachs, believes the Federal Reserve will now take some time before raising interest rates again;
last week his firm was of the opinion that it would raise rates by a quarter of a point next week.
In a note to his clients, he noted that the Fed seems more focused on calming the banking sector and markets than fighting inflation.
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“We would be surprised if, just a week after doing all they can to support financial stability, policymakers risk undermining their efforts by raising interest rates again,” Hatzius wrote in another note on Monday.
Hatzius predicted that if the Fed stops raising rates this month, it will likely resume them at its next meeting in May.
Ultimately, he continues to expect the central bank to raise its official interest rate, which affects many consumer and business loans, to 5.4% this year from 4.6% currently.
In its fight against inflation, the Federal Reserve could be unwittingly helped by the aftermath of the failure of Silicon Valley Bank and New York-based Signature Bank.
In response to this situation, many small and medium-sized banks could reduce their loans to shore up their finances.
A slower lending pace could help cool the economy and curb inflation.
[Silicon Valley Bank bankruptcy: does it mean that the financial crisis of 2008 can be repeated?]
The possibility that the Fed will take a pause underscores the abrupt change experienced by the financial system and the economy of the country in just one week.
Last Tuesday, Fed Chairman Jerome Powell told the Senate Banking Committee that if hiring and inflation continue to rise, the Fed would likely raise rates at this month's meeting by a hefty half-point.
This would have meant a further acceleration of the Federal Reserve'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.
Testifying before a House committee the next day, Powell warned that no final decision had been made on what the Fed would do at the March meeting.
Still, employment data released last Friday revealed that 311,000 jobs were added in February, a potential sign that inflation remained high, leading to forecasts of a half-point rise at the Fed meeting in February. next week.
Hours later, Silicon Valley Bank failed, raising a wave of concerns in the banking sector that the Fed had to deal with.