US inflation fell to 6% in the 12 months to February, complicating the picture for interest rates as banks and stock markets feel the effects of the Silicon Valley Bank (SVB) collapse.
The US Bureau of Labor Statistics (BLS) said the consumer price index (CPI), the measure of inflation, fell from 6.4% for the year to January.
The announcement will be closely watched by the US Federal Reserve, known as the Fed, as it considers raising interest rates.
However, persistently high inflation will encourage further interest rate hikes Fall of the SVB and then Signature Bank will give Fed officials pause.
The Fed will decide whether to hike rates again based on economic factors, including inflation and jobs data such as job vacancies and the unemployment rate.
prices were hiked consistently – and further increases were expected – to bring the inflation rate towards its target of 2%.
But following The collapse of the SVBpartly due to higher interest rates, markets are now expecting rate hikes to slow at the next Fed announcement on March 21st.
The SVB had a large amount of government bonds – government promissory notes – on its balance sheet, which fell in value over the past year as interest rates rose. At the same time, the bank had to pay higher interest on deposits.
Goldman Sachs, the global financial services company, said it now expects no rate hike at all at the end of the month.
A number of other commentators agreed or said they expected a 25 basis point hike at most.
Robert Pavlik of Dakota Wealth Fairfield said: “I think they will probably wait because they are worried about the contagion issue and the precarious position banks are getting in relation to their balance sheets.
“If the Fed is worried about saving face or looking wishy-washy or worried about losing credibility with the market, it will hike 25 basis points. I think they should, but they probably won’t.”
Just last week, Fed Chair Jerome Powell warned against further rate hikes.
While high interest rates were one of the reasons for the decline in SVB, interest rates have traditionally been good for banks’ profitability.
The social media-driven run on Silicon Valley Bank is having an impact on many fronts
Many of the UK’s largest retail banks have reported record profits, as has the Bank of England increased its courses to combat persistent double-digit inflation.
These higher interest rates have allowed banks to operate more broadly Gap between what they pay savers and what they charge. This gap is known as the net interest margin.
banks incl NatWest And Lloyd’s increased their net interest margins by 24% and 16%, respectively, while Barclays rose by 13%.