US inflation slowed to 6 percent year-on-year in February

US inflation slowed to 6 percent year-on-year in February
Checkout line at a New Jersey supermarket (AP)

The rise in US consumer prices eased slightly from January to February, but still points to rising inflation that poses a challenge to the Federal Reserve at a sensitive time for the financial system.

On Tuesday, the government indicated this Prices rose 0.4% last month, just down from 0.5% in January. However, excluding volatile food and energy prices, so-called core prices rose 0.5% in February, just above the 0.4% rise in January. The Fed is paying close attention to fundamental action as an indicator of underlying inflationary pressures.

If compared to last year’s prices, inflation has been moderate for eight months. in february, Consumer prices rose 6% from the previous 12 months, down from 6.4% in January. And from the last maximum of 9.1% in June. but, It is still well above the 2% annual inflation target set by the Federal Reserve. In February, core prices rose 5.5% compared to the twelve months prior, just down from 5.6% in January.

Even though rates are rising much faster than the Fed wants, some economists expect the central bank to end its year-long streak of rate hikes when it meets next week. With the collapse of two major banks since Friday, raising concerns about other regional banks, the Fed may, for now, focus more on boosting confidence in the financial system than on its long-term campaign to rein in inflation.

Shopping in California (Reuters)

This is a sharp departure from just last week, when Chairman Jerome Powell suggested to the Senate committee that if inflation does not subside, the Fed could raise the benchmark interest rate by half a point at its March 21-22 meeting. When the Fed raises the benchmark interest rate, it usually leads to higher rates of interest on mortgages, auto loans, credit cards, and many business loans.

the Inflationary pressures remain entrenched in much of the economy. Rents, grocery prices, and the cost of hotels, restaurants, and flights have all risen dramatically as more Americans seek housing and spend money on travel, dining out, and shows.

Jan Hatzios, chief economist at Goldman Sachs, said Goldman now believes that federal policymakers will hold off on raising interest rates next week. Goldman had previously forecast a quarter-point rise. In a note to clients, Hatzios noted that the Fed, for now, seems more focused on calming the banking sector and financial markets than fighting inflation.

“We would be surprised if, after just a week of doing all they can to support financial stability, policymakers risk undermining their efforts by raising interest rates again,” Hatzios wrote in another note on Monday.

Hatzius predicted that if the Fed suspends interest rate hikes this month, it will likely resume them at its next meeting in May. Ultimately, it is still waiting for the Fed to raise its policy rate, which affects many consumer and business loans, to 5.4% this year, from 4.6% currently.

In its fight against inflation, The Fed could unwittingly help in the aftermath of the failures of Silicon Valley Bank and Signature Bank of New York. In response, many small and medium banks may reduce lending to support their finances. A slower pace of lending could help calm the economy and rein in inflation.

It confirms the possibility of the Federal Reserve stopping the sudden change in the financial system and the country’s economy in just one week. Last Tuesday, Powell told the Senate Banking Committee that if employment and inflation continue to rise, the Fed will likely raise interest rates at this month’s meeting by a significant half point.

This meant a further acceleration of the Fed’s efforts to tighten credit. The central bank raised the benchmark interest rate by a quarter point in February, half a point in December and three-quarters of a point four times before.

Testifying before a House committee the next day, Powell warned that no final decision had been made on what the Fed would do at the March meeting. However, on Friday the government reported that employers had created 311,000 jobs last month. It was a possible sign that inflation remains high, and has led to expectations of a half-point hike at next week’s Federal Reserve meeting.

However, the Silicon Valley bank fiasco happened on the same day, raising a whole new set of concerns for the Federal Reserve.

(with information from the AP)

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