U.S. Inflationary Pressures Cool in February, Implications for Fed Policy Meeting Ahead

Inflationary pressures continued to cool in the U.S. in February, according to the latest Consumer Price Index (CPI). The annual rate of inflation fell from 6.4% to 6.0%, the lowest reading since September 2021.[0] On a month-over-month basis, prices rose 0.4%, in line with expectations. Core CPI, which excludes food and energy, also rose 0.5% from January and 5.5% from the same month in 2021, above 0.4% forecasts.[1] Prior to its policy-setting meeting on March 21-22, the Federal Reserve released its last report, its implications being major for the central bank. It is in the process of tightening monetary policy significantly, in an effort to counteract inflation which is going beyond bounds.[2]

For the month, services inflation — a significant area of consideration for the Federal Reserve in order to assess the degree to which inflation is increasing — increased by 0.1%, now standing at 0.8%.[3] It has increased by 8.1%[4] The government reported that rent costs were the major cause of the general inflation, with 70% of the annual increase being attributed to them. Additionally, food, recreation and furniture prices also contributed to the rise.[5]

In response to the downfall of Silicon Valley Bank, Signature Bank, and Silvergate, the Federal Reserve, Treasury, and the Federal Deposit Insurance Corporation collaborated to try and contain any further damage.[6] Ahead of the CPI report’s release, economists expected headline inflation to rise by 6% and core inflation to increase by 5.5% year-over-year.[7] It was anticipated that prices would increase by 0.4% from January to February.

On Monday night, CME Group's FedWatch tool indicated that there was a 62% likelihood of a quarter-point increase in benchmark rates, and a 38% chance that they would remain the same.[7] Following the CPI inflation data, that jumped to 88% odds of a quarter-point hike and just 12% odds of no hike.[8]

The Federal Reserve's reaction to the banking industry's difficulties is yet to be seen, but they must address the chaos when their next policy meeting concludes on March 22.[9] Banks have varying expectations concerning the actions of the Federal Reserve.[0]

0. “What Inflation Data Means for the Economy After SBV Collapse” Newsweek, 14 Mar. 2023, https://www.newsweek.com/inflation-sbv-data-economy-collapse-finance-1787619

1. “Footwear Prices Were Up 0.8% in February, the Slowest Growth in 23 Months” Yahoo Life, 14 Mar. 2023, https://www.yahoo.com/lifestyle/footwear-prices-were-0-8-153015604.html

2. “Inflation Is Slowing Down. It's a Positive for the Fed.” Barron's, 14 Mar. 2023, https://www.barrons.com/articles/february-cpi-inflation-data-report-today-ea428646

3. “Inflation drops to 6%, but housing costs remain high—and the Fed is still watching ‘supercore' inflation” CNBC, 14 Mar. 2023, https://www.cnbc.com/2023/03/14/inflation-drops-to-6-percent-in-february-2023.html

4. “Inflation fell for the eighth straight month in February” The Mercury News, 14 Mar. 2023, https://www.mercurynews.com/2023/03/14/inflation-fell-for-the-eighth-straight-month-in-february/

5. “Inflation cooled in February, yet remains stubbornly high” CBS News, 14 Mar. 2023, https://www.cbsnews.com/news/inflation-cpi-report-february-2023-03-14

6. “Consumer prices continued to rise quickly in February” Axios, 14 Mar. 2023, https://www.axios.com/2023/03/14/february-consumer-price-index-inflation

7. “Inflation rose 6% in February as Fed mulls more rate hikes amid bank chaos” New York Post , 14 Mar. 2023, https://nypost.com/2023/03/14/inflation-rose-6-in-february-as-fed-mulls-more-rate-hikes

8. “CPI Inflation Rate Still Pretty Hot, But Fed May Pause” Investor's Business Daily, 14 Mar. 2023, https://www.investors.com/news/economy/cpi-inflation-rate-still-pretty-hot-but-fed-may-pause-sp-500-futures-rise/

9. “Inflation Fell To 6% In February—But Some Experts Fear Banking Crisis Could Make Prices Worse” Forbes, 14 Mar. 2023, https://www.forbes.com/sites/jonathanponciano/2023/03/14/inflation-fell-to-6-in-february-but-some-experts-fear-banking-crisis-could-make-prices-worse

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