US Inflation Analysis: Price rises still sticky, Fed to resume rate rises once the SVB storm settles


  • US inflation remains stubbornly high, with core prices rising at an accelerated pace of 0.5% in February. 
  • Markets are currently focused on the banking crisis, but attention spans are infamously short. 
  • When the dust settles, the Fed is set to continue raising rates.

A semi-Lehman moment? That seems to be the fear in financial markets in recent days, with a sliver lining – a lower path of interest rates. Yet if Silicon Valley Bank's spectacular failure is contained, then the good news for the economy melts that silver lining. The fresh inflation gives the Federal Reserve a fresh reason to raise interest rates. 

The Core Consumer Price Index (Core CPI) rose by 0.5% in February, above 0.4% which was reported for January and expected for now. While Core CPI decelerated to 5.5% yearly, it is still substantially above the Fed's 2% target. 

Inflation has peaked – but that is not news anymore. The issue is that price rises are not falling, just becoming sticky. Moreover, the peak in yearly inflation remains at risk if Core CPI comes out above 0.3%. 

Four natural days and only two trading days have passed since SVB collapsed, triggering fears. As time passes by and no additional institution needs help, confidence is rising about the resilience of the banking system. 

If the Fed meeting were today, it would leave rates unchanged due to the ongoing uncertainty about banks. However, a week is a long time in markets. If the upcoming weekend is quiet – no scrambling to save any banks – there is a good chance of a 25 bps rate hike. 

The Fed raises rates until something breaks. But if that something is only SVB, stubbornly high inflation means more hikes. That means a stronger US Dolllar, and eventually a fall in the stocks, once the relief rally related to no new bank failures ends. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD bounces to 0.6450, shrugs off mixed Australian jobs data

AUD/USD bounces to 0.6450, shrugs off mixed Australian jobs data

AUD/USD is rebounding to test 0.6450 amid renewed US Dollar weakness in the Asian session on Thursday. The pair reverses mixed Australian employment data-led minor losses, as risk sentiment recovers. 

AUD/USD News

USD/JPY bounces back toward 154.50 amid risk-recovery

USD/JPY bounces back toward 154.50 amid risk-recovery

USD/JPY bounces back toward 154.50 in Asian trading on Thursday, having tested 154.00 on the latest US Dollar pullback and Japan's FX intervention risks. A recovery in risk appetite is aiding the rebound in the pair. 

USD/JPY News

Gold rebounds on market caution, aims to reach $2,400

Gold rebounds on market caution, aims to reach $2,400

Gold price recovers its recent losses, trading around $2,370 per troy ounce during the Asian session on Thursday. The safe-haven yellow metal gains ground as traders exercise caution amidst heightened geopolitical tensions in the Middle East.

Gold News

Manta Network price braces for volatility as $44 million worth of MANTA is due to flood markets

Manta Network price braces for volatility as $44 million worth of MANTA is due to flood markets

Manta Network price was not spared from the broader market crash instigated by a weakness in the Bitcoin market. While analysts call a bottoming out in the BTC price, the Web3 modular ecosystem token could suffer further impact.

Read more

Investors hunkering down

Investors hunkering down

Amidst a relentless cautionary deluge of commentary from global financial leaders gathered at the International Monetary Fund and World Bank Spring meetings in Washington, investors appear to be taking a hiatus after witnessing significant market movements in recent weeks.

Read more

Majors

Cryptocurrencies

Signatures