Annual inflation fell for an eighth straight month in February – temporarily easing concerns about the future of the Federal Reserve’s tightening campaign – but some experts are increasingly worried that the government’s plan to guarantee failing bank deposits could lead to inflation. can complicate the path of, and ultimately make it worse.
Consumer prices rose 6% year-on-year statistics Released by the Labor Department on Tuesday, the smallest year-over-year increase since September 2021 and a fall in line with economist expectations after a 6.4% spike in January.
Rent prices were the biggest contributor to overall inflation, the government said, noting that they accounted for 70% of the year-on-year spike, while prices of food, entertainment and furniture also increased.
The latest data comes after Silicon Valley Bank and Signature Bank suddenly failed within two days, as liquidity concerns sparked contagion fears and prompted the Fed and Treasury Department to issue a plan to guarantee deposits. Inspired to
“The SVB rescue package is essentially a new form of quantitative easing,” says Nigel Green, CEO of wealth advisory Devire Group. Recession.
As a form of quantitative easing, Green argues that the government’s failed-bank rescue plan effectively increases the supply of dollars in circulation, potentially reducing the purchasing power of the currency and making it more prone to depreciation. Makes you sensitive.
"If the bank crisis is confined to only a few banks, then the actions taken by the Fed and Treasury on Sunday will prove to be inflationary," says Tom Esse, analyst at Sevens Report. "By backstopping depositors, the government has averted the lion's share of the economic damage from this crisis," he says, and the $25 billion bank term funding program, which provides banks with loans for up to one year , will increase the Fed's balance sheet. At a time when it is actively trying to shrink it, further reversing the central bank's recent policy actions, Essaye explains.
what to watch
It is still unclear how Fed officials will respond to the banking sector's struggles; However, officials will be forced to respond to the turmoil at the conclusion of the central bank's next policy meeting on March 22. Before the crisis, many experts predicted that the Fed could accelerate the pace of rate hikes later this month - authorizing a half-point increase after a quarter-point increase last month. Following SVB's collapse, analysts at Goldman Sachs said on Sunday the firm "no longer expects" the Fed to hike interest rates this month. Others, including investment bank Nomura, followed suit, calling for no hike next week.
Inflation dropped to 6.4% in January (Forbes)
Biggest bank failure since Great Depression sparks fears of 'extreme growth' of contagion – but big dangers remain (Forbes)
Goldman expects no Fed rate hike in March after SVB collapse (Forbes)
Credit: www.forbes.com /