Economists Expect Accelerating U.S. Inflation in February

Headline inflation in the United States likely increased at a strong pace in February, but economists are split on whether this data will push the Federal Reserve to raise interest rates again next week following the collapse of two major banks, Silicon Valley Bank in California and Signature Bank in New York.

According to a Reuters poll, the Consumer Price Index (CPI) likely rose by 0.4% in February, following a 0.5% increase in January. It would make February’s year-over-year increase in the CPI the lowest it’s been since September 2021, at 6.0%. During the year that ended in January, the CPI increased by 6.4%.

On Tuesday (March 14), the Labor Department will release the consumer price index. Economists expect to see inflation speed up due to a rise in prices of used motor vehicles and high rental housing costs.

However, following the failures of Silicon Valley Bank in California and Signature Bank in New York, which led regulators to take emergency measures to restore trust in the banking system, economists are divided on whether the Fed would raise interest rates at its upcoming meeting on March 21-22.

Expectations for Fed’s rate hikes shrunk from a possibility of a 50 bps rate hike in March to none as of Monday. A 25 bps increase seems certain with the odds of 98.2% and a slight chance of no hike at 1.8%, according to the CME FedWatch Tool.

However, the momentum swung wildly in just 24 hours as the odds on Tuesday for a 25 bps rate hike in March shrunk from 98.2% to 68.6% and the probability for a no hike rose to 31.4%.