Inflation is slowing in the US but it is not surprising that the Federal Reserve is at a crossroads

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In February, prices slowed to 6% as expected. At 5.5%, the core number. Powell may slow down, but analysts are torn between a 0.25% rate hike and inaction

Honoring expectations, US inflation slows in February and still brings some hope to markets grappling with the Svb fault. Consumer prices in the United States increased by 6% on an annual basis last month, in line with analysts’ expectations, marking the lowest increase since September 2021. The increase was 0.4% on a monthly basis, which is also as expected. The core indicator, excluding food and energy costs which the Fed considers more reliable, grew by 0.5% compared to January, against expectations for a 0.4% rise. However, on an annual basis, the increase was 5.5% from 5.6% in January, the lowest level since December 2021 and in line with the consensus.

Even with inflation well above the 2% target, and despite a figure that is in line with expectations with no change of cards on the table, markets see potential for a lower pace of Fed monetary tightening. After the bankruptcy of Silicon Valley, the US central bank could, in fact, choose a more moderate approach, and quickly ignore the hawkish remarks made to Congress by its chairman, Jerome Powell, just a few days ago.

However, the game remains complex: the FOMC must in fact find a balance between combating price hikes and tensions in the banking market. At the next meeting on March 21-22, it is not yet clear how it will move, with some analysts betting on maintaining the status quo and others estimating a 0.25% rate hike because inaction will send the wrong signal to the markets. And there are also, like Nomura, who assumed a 25 basis point cut.

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“After past stormy days, with concerns about systemic risks in the banking system, today’s data shows that inflation remains elevated and persistent,” says John Mayer, CEO of Global X. The expert also notes how core inflation has been a bit more solid, with food and services still rising. All indications are that the Federal Reserve will raise the federal funds rate by 25 basis points next week. The market breathed a sigh of relief today on the banking front, with regional banks posting strong gains. Today’s report came in as expected, allowing the market to look at other factors.

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