The US Bureau of Labor Statistics will release February inflation data Tuesday morning as investors continue to process the fallout from the Silicon Valley Bank collapse and assess what it means for the broader economy.
Forecasts pointed to 12-month headline inflation of 6%, down from 6.4% in January.
Before SVB collapsed on Friday, analysts still feared the US economy was too hot to contain inflation, with some forecasters even betting that the Federal Reserve would have to raise its key fed funds rate by a 0.5% at your meeting this month. , above the increase of 0.25% at their meeting in January.
But in the wake of SVB’s seizure by regulators, the US economy may find itself at the beginning of a new chapter, one in which companies are less inclined to make investments and thus reduce demand. demand and price growth in the market.
On Sunday night, Goldman Sachs chief economist Jan Hatzius wrote in a note to clients that he believed the Fed would have to «pause» its rate-hike program altogether as a result of the SVB collapse.
«While we agree that further tightening is likely to be needed to address inflation if financial stability concerns abate, we think Fed officials are likely to prioritize financial stability for now,» he wrote. Hatzius.
He added: «Financial stability is an immediate concern and must be safeguarded by policymakers at all times, while inflation is a much slower moving issue.»
Other economists suggested that the news of the SVB failure had, so far, done little to alter the trajectory of price increases in the US economy and thus put pressure on the Fed to continue raising rates.
«Despite substantial market volatility in recent days, there has been little to really impact our inflation outlook so far this year,» Citibank economists wrote in a note to clients Monday.
The Fed is unlikely to start a rate hike pause, they said.
«Doing so would invite markets and the public to assume that the Fed’s anti-inflation resolution is only in place to the point where there is a downturn in financial markets or the real economy,» the economists wrote. Citi.
In fact, there are differing views on what the Fed will do next as it continues its fight against inflation.
Morgan Stanley said in its most recent note to clients that it could not rule out another 0.5% increase. Evercore’s ISI research unit and JPMorgan believe a 0.25% rise is more likely. In addition to Goldman Sachs, the financial group Barclays also believes that the Fed will stop its rate-raising regime altogether. And Nomura Securities thinks the Fed might even cut interest rates at its next meeting.
Aside from the outcome of the SVB saga, of course, the Fed’s decision-making on interest rates, which influence the cost of borrowing in the US economy, will remain tied to how it sees the ongoing inflationary pressures in the economy.
One item the Fed will watch closely is the price of services, which is heavily influenced by the cost of paying workers.
“Payroll growth over the past two months has been faster than the idea of any sustainable pace, so policymakers will continue to be concerned about the potential for stronger-than-consistent wage growth. with inflation target (2%),” wrote Ian Shepherdson, the chief economist at research consultancy Pantheon Macroeconomics.