It’s hard to judge how much the recent troubles in the banking sector will weigh on the U.S. economy. However, the latest U.S. inflation data made it easier for the Fed to decide to wait and see what happens without risking a possible error by continuing to raise rates.
It’s hard to judge how much the recent troubles in the banking sector will weigh on the U.S. economy. Still, Friday’s inflation data from the Commerce Department made it easier for the Federal Reserve to decide to wait and see what happens without risking a possible mistake by continuing to raise interest rates.
The U.S. Department of Commerce announced in its February Personal Income and Expenditures report that a measure of consumer prices rose 0.3% in February from January and 5% from a year earlier. The measure is the Fed’s favored measure of inflation.
More importantly, the core measure excluding food and energy prices rose 0.3% from the previous month, slightly below expectations of economists polled by The Wall Street Journal. Price growth in January was also revised downward. Core prices rose 4.6 percent from a year earlier. That was still well above what the Fed had hoped for, but it was the smallest increase since October 2021.
Friday’s inflation data was good news at a time when investors, economists and policymakers are struggling to figure out how badly the banking sector’s woes will hit the economy. The general thinking is that tighter lending conditions will somehow equate to further rate hikes by the Fed. But what is the equivalent of raising interest rates?
…
It’s hard to judge how much the recent troubles in the banking sector will weigh on the U.S. economy. Still, Friday’s inflation data from the Commerce Department made it easier for the Federal Reserve to decide to wait and see what happens without risking a possible mistake by continuing to raise interest rates.
U.S. Department of Commerce inPersonal Income and Expenditure Report for FebruaryIn February, the measure of consumer prices rose 0.3 percent from January and 5 percent year-on-year. The measure is the Fed’s favored measure of inflation.
More importantly, the core measure excluding food and energy prices rose 0.3% from the previous month, slightly below expectations of economists polled by The Wall Street Journal. Price growth in January was also revised downward. Core prices rose 4.6 percent from a year earlier. That was still well above what the Fed had hoped for, but it was the smallest increase since October 2021.
Friday’s inflation data was good news at a time when investors, economists and policymakers are struggling to figure out how badly the banking sector’s woes will hit the economy. The general thinking is that tighter lending conditions will somehow equate to further rate hikes by the Fed. But what is the equivalent of raising interest rates?
Some reports that investors usually only skim through are suddenly in the spotlight.published by the Federal Reserve on ThursdayWeekly Bank Loan Reportpublished every FridayWeekly Report on Assets and Liabilities of the Banking Systemand the Investment Company Institute (ICI) published every ThursdayMoney Market Fund Capital Datahave been carefully studied. Experts who only recently figured out the inner workings of ChatGPT are now experts on them.
The difficulty is that while measures such as measuring the amount of cash flowing into money market funds can help to understand whether stresses in the banking system are building or dissipating, they can’t tell you what impact those stresses will have in the economy. The current situation is unfamiliar, and there have been somewhat similar precedents in history, such as the savings and loan crisis that began in the 1980s, but in those days, there was no technology that might transfer money through a mobile phone.
So, the only way to really tell if lending is tightening is to watch, and watching takes time. After all, last Friday’s report was for February, and the world has changed since then.
