Inflation Up 6% in Feb, but Bank Crises Casts Doubt Over Planned Rate Hike

( – The numbers are out and inflation is up 6% for February over the prior year. This combined with the banking crisis leaves the Federal Reserve on very shaky ground. Food prices continue to rise starkly, as they are up 9.5% year-over-year. The Consumer Price Index (CPI) puts “food at home” (their term for grocery prices) up 10.2% from last year. Egg prices are up 55.4%, dairy goods are up 12.3%, and baked goods and breakfast products are up 14.6%. Additionally, energy expenses are up 5.2%.

Investors have now set their gaze on the Federal Reserve, will they continue to raise interest rates to stave off some of the inflation or will they not in light of Silicon Valley Bank (SVB) and Signature Bank collapsing? Nancy Davis, the founder of Quadratic Capital Management, says The Fed is in a “very difficult spot” as a move to combat inflation may trigger problems in banking. She says The Fed is low on “good choices.” Prior to the banking collapse, Fed Chair Jerome Powell had announced his plan to raise rates.

SVB’s recent collapse will weigh heavily on Powell’s decision. A meltdown in the banking sector would not only worsen inflation but would likely upend the entire economy. The Biden Administration tried to get in front of this by announcing that the Fed, the Treasury Department, and the FDIC will guarantee all deposits. However, that claim has been met with scrutiny as the numbers involved are more than the FDIC can handle and consumers may not be convinced, especially long-term. Even to Biden’s left he’s not getting high praise, as “Morning Joe” host Joe Scarborough typically a vocal ally of the president said Biden’s efforts to convince people the banking industry is secure “didn’t work.” Experts feel with the new dynamics Powell will likely not increase interest rates or increase them at a much smaller percentage than initially planned.

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