Please don't mix the consequences and the causes.
It should take a lot more than temporary instability in the community banking sector for the Fed to deescalate its response. Six percent CPI inflation is an emergency that needs to be addressed with aggressive action. Nearly two years of decades-high inflation has inured the policy debate to these eye-popping numbers. Over the past three months, core CPI has increased at a 5.2% annual rate – the fastest pace since October 2022. Stripping out volatile food and energy prices found 5.5% “core” inflation. Last month, the consumer price index registered 6% inflation relative to the same month in 2022. With signs Monday that bank deposits had stabilized, a 50 bps increase would be even better. Policymakers should hike the benchmark federal funds rate by at least 25 basis points this week. But while the failures of Silicon Valley Bank (SVB) and Signature Bank are significant market events, they should not knock the Fed off course. WASHINGTON, DC – Financial-market turmoil has clouded the outlook for US monetary policy, with many economists, investors, and financial institutions expecting that the Federal Reserve will not increase its policy interest rate at its meeting this week.
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