Fed inflation gauge seen staying elevated
The Federal Reserve’s preferred measure of underlying price pressures probably remained elevated in February, keeping officials in a precarious spot as they seek to balance inflation-fighting resolve and stress on the banking system.
The US personal consumption expenditures price index, excluding food and fuel, is forecast to rise 0.4 percent from a month earlier, according to the Bloomberg survey median. That would follow the largest advance since June.
Compared with February 2022, the core inflation gauge is seen up 4.7 percent, while the overall measure is projected to post a 5.1 percent advance — both more than double the Fed’s goal.
Policy makers on Wednesday raised their benchmark interest rate for the ninth straight meeting, to the highest since 2007, while stressing that their bid to tamp down inflation isn’t expected to deepen a nascent banking crisis. Still, rising borrowing costs risk adding to pressures on the financial system that could tip the economy into a recession.
The government’s data on Friday are also expected to show inflation-adjusted personal spending declined in February after surging a month earlier.
The income and spending report takes top billing in a subdued week for US economic releases that includes readings on consumer confidence, home prices, and contract signings for purchases of previously-owned houses.
Investors will likely pay closer attention to Fed officials this coming week in hopes of gauging the appetite for further rate hikes. Fed Governor Philip Jefferson will discuss monetary policy at event on Monday, followed later in the week by speeches from Boston Fed President Susan Collins, Richmond Fed President Tom Barkin, and governors Christopher Waller, and Lisa Cook.
On Sunday during an interview on CBS’s “Face the Nation,” Minneapolis Fed President Neel Kashkari said recent bank turmoil has increased the risk of a US recession but that it’s too soon to judge what it means for the economy and monetary policy.
Asked if the strains could tip the country into a recession, he said, “It definitely brings us closer.”
“What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. Would that slow down the economy? This is something that we’re monitoring very, very closely,” said Kashkari, a voter on monetary policy this year. “It’s too soon to make any forecast about the next interest rate meeting.”
The next meeting of the policy-setting Federal Open Market Committee is May 2-3.
Fed Vice Chair for Supervision Michael Barr is scheduled to testify this week at separate hearings of the Senate Banking Committee and the House Financial Services Committee on recent bank failures.