The failure of two of the largest thirty U.S. banks by assets in the past three days may temporarily moderate the Fed’s recently hawkish posture on interest rates. In testimony last week, Federal Reserve Chair Jerome Powell was hinting at a relatively large 0.5 percentage point hike at the Fed’s March 22 rate decision. Now interest rate futures imply a likelihood of a smaller 0.25 percentage point hike with a small chance of holding rates steady. Of course, markets and the Fed are still digesting recent news and policy responses.
Inflation Concerns
Regardless of disruption in the banking sector, inflation data remains a concern. With January’s CPI data showing spiking inflation, which February’s data could reinforce. Also, service inflation remains stubbornly high. Lack of sustained progress on inflation has caused the Fed to signal that more work in raising rates is needed.
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