Tuesday’s inflation figures won’t soothe the poor bruised Federal Reserve (the Fed).
What does this mean?
The Fed was thinking of speeding up interest rate hikes just a few days ago, but the collapse of Silicon Valley Bank (SVB) will have given it pause for thought – and maybe a few pangs of conscience for good measure. After all, the Fed’s record-fast rate hikes helped set up some of the dominoes that toppled SVB. And if that debacle didn’t muddy the waters enough, February’s inflation data has come along to finish the job. On the one hand, the 6% annual rise and monthly uptick of 0.4% were pretty much what folk expected. But on the other, the slowdown in goods inflation seems to be wearing off – bad news, given that’s been a key factor calming inflation over the last few months.
Why should I care?
For markets: Always look on the bright side of life.
Inflation’s still way above the Fed's 2% target, but there are a few facts the central bank can take comfort in. First off, February's inflation wasn't worse than anticipated, which is definitely a relief for policymakers. Secondly, over 70% of the monthly increase in inflation came from accommodation costs – and that could be the silver lining. See, there’s a lag in the accommodation data used to calculate inflation, and real-time measures are already showing that rent’s starting to drop. The true headline figure is probably lower than 6% – which could give the Fed some breathing room when it comes to future hikes.
The bigger picture: Good news for the big dogs.
The dust that SVB kicked up is settling a little, with US banks – especially regional players – seeing their stocks regain some mojo on Tuesday. But customers are still taking no chances: the top six US banks, deemed too big to fail, have been flooded with panicky cash in the last few days.
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