Shoppers look at merchandise on display at a Washington, DC grocery store on February 15, 2023.
Stephanie Reynolds | AFP | Getty Images
The consumer price index may have calmed down a bit in February, but economists expect it to remain on a high pace.
Expected headline inflation on Tuesday morning is expected to show headline inflation of 0.4% last month, up 6% from a year earlier, according to economists surveyed by Dow Jones. This compares with a 0.5% increase for him in January and an annualized rate of 6.4%. Core inflation, which excludes food and energy, is expected to rise by 0.4% to an annual pace of 5.5%.
The report is scheduled for 8:30 am ET.
Just a few days ago, high inflation reports would have raised hopes that the Fed could raise the size of its next rate hike to 50 basis points from the 1/4 percentage point it did in February. But now the market is more concerned about bank failures and contagion, and at its March 21 meeting, he questions whether the Fed will stick to his quarter-point rate hike. We have a group of economists. 1 basis point equals 0.01 percentage point.
“How important we thought this was [CPI] Kevin Cummins, chief US economist at NatWest Markets, said in fact he no longer expects the Fed to raise rates this month. , and he sees the rate hike cycle coming to an end.
“If it’s stronger than expected, it’s going to be seen as a little stale,” he said. In some cases, it will be considered old news, and if it is weak, it could fuel the idea that the Fed may be on pause.”
Cummins said he expects the economy to slip into recession later this year, and that the aftermath of the Silicon Valley bank failure could accelerate the recession if banks refrain from lending.
Cummins also expects a slowing economy could cool inflation.
But for now, economists say shelter costs continued to rise in February, while food and energy price increases have slowed.
Jefferies money market economist Tom Simmons expects the Fed to continue raising interest rates by half a percentage point in March.
“To stop rate hikes, we need to ease more,” Simmons said. “Stopping here puts inflation expectations at risk of accelerating again.” “Then you run the risk of having to make a bigger move later when you don’t know what the environment is going to be like. It makes sense to stay on course and check everything. They have things to do. There are more.”
Simons said the market will only focus on one Fed meeting at a time due to the uncertainty. March 21st and his next meeting on the 22nd he will be in May. “May will be May’s job. There’s a lot going on between now and then that will help us understand things a little better,” Simmons said.
Simons says Fed Chairman Jerome Powell told Congress last week that January’s inflation data was higher than expected, which could force the Fed to raise rates more than expected. . This caused interest rates to rise sharply, but the collapse of Silicon Valley Bank (SVB) has led to a dramatic drop in interest rates since last Wednesday.
For example, as of Monday, the 2-year US Treasury yield fell about 100 basis points from Wednesday. This is his biggest three-day move since 1987. Yields are the most reflective of his Fed policy, with him at 4.08% on Monday afternoon.
On Sunday, the U.S. government agreed to protect affected depositors and financial institutions of the SVB and signatory banks that were shut down by regulators in New York over the weekend.
“Last month dismissed the notion that we were headed for a disinflationary trend. Inflation data in the fourth quarter had softened…and last month’s revision revised them higher, and January accelerated,” Simmons said. In Humphrey Hawkins’ testimony on Capitol Hill last week, “It really made us question whether we were headed for lower inflation. That’s why Powell sounded more hawkish.”