Pressure on Fed Heightens amid Steadfast Inflation and Financial Instability Risks

The latest news release on March 14th by the U.S. Bureau of Labor Statistics (BLS) indicated that the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in February on a seasonally adjusted basis and the all items index increased 6.0 percent over the last 12 months before seasonal adjustments, representing a moderate improvement compared to the 0.5 percent and 6.4 percent respective increases in January. Known as the core CPI, the consumer price index excluding food and energy increased 0.5 percent in February and 5.5 percent from a year earlier — a gauge which economists see as a better indicator of underlying inflation. Although the nation’s economy has largely proven resilient to the Federal Reserve’s interest rate hikes over the past year, “the challenge for the Fed now is how to prioritize inflation that is still far too high with growing financial instability risks in the unraveling of Silicon Valley Bank (SVB).” Just three days prior to the March 10th FDIC takeover of SVB, news that the “Fed would need to raise rates higher than previously anticipated” pushed the yield curve to invert further as shorter-term yields rose sharply as the two-year Treasuries closed at a 5.015 percent — a new high since mid-2007; while yields on the 10-year Treasury note fell 1.5 basis  points to 3.968 percent.


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