February inflation report likely to show consumer prices remain elevated
Where should the Fed funds rate be to combat inflation?
Hoover Institution senior fellow John Taylor reacts to the Federal Reserve’s efforts to combat inflation on ‘Kudlow.’
A high-stakes inflation report due Tuesday is expected to show that price pressures within the economy remained strong last month, despite an aggressive interest-rate hike campaign by the Federal Reserve.
Economists expect the consumer price index, which measures a basket of goods, including gasoline, health care, groceries and rent, to show that monthly prices rose 0.4% in February, down slightly from an increase of 0.5% January. On an annual basis, inflation is projected to have climbed 6% at an annual rate, a decline from 6.4% the previous month and a peak of 9.1% in June.
When excluding the more volatile measurements of food and energy, prices are expected to climb by 0.4% or 5.5% annually, suggesting that underlying inflationary pressures remain strong.
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The report is the last before the Federal Reserve's next policy-setting meeting on March 21-22 and will have major implications for the U.S. central bank, which is tightening monetary policy at the fastest rate in decades as it tries to crush out-of-control inflation.
Officials have already approved eight straight rate increases, lifting the federal funds rate to a range of 4.5% to 4.75%, well into restrictive levels. In recent weeks, policymakers have indicated that rates may need to climb higher than previously anticipated in the face of hotter-than-expected economic data.
However, rate-hike expectations were thrown into uncertainty after the stunning implosion of Silicon Valley Bank on Friday roiled global markets and triggered fears of a broader financial meltdown.
The probability that the Fed pauses its rate-hike campaign next week rose to 28% on Monday, according to data from the CME Group's FedWatch tool, up from 0% just one day ago. About 71% of traders, meanwhile, are anticipating a typical quarter-point hike.