Inflation around the U.S. rose at an annual rate of 6% rate in February, cooling from the prior month yet posing a dilemma for the Federal Reserve as it copes with the double whammy of stubbornly high inflation and instability in the banking sector.
The report matched economists' forecasts that the Consumer Price Index, a broad basket of good and services, increased 6% last month, according to financial data company FactSet. February's inflation reflected "the smallest 12-month increase since the period ending September 2021," the Labor Department said on Tuesday.
In January, inflation rose at a 6.4% annual rate, hotter than expected and raising investor concerns that the Fed may need to continue hiking interest rates for longer — and higher — than previously expected in order to tame rising prices.
Before the abrupt collapse of Silicon Valley Bank on Friday, Fed officials were widely expected to lift their benchmark rate when they meet March 21-22. But banking industry turmoil after state regulators seized SVB and New York's Signature Bank has since thrown the central bank's calculus into doubt.
That may pose a quandary for the Fed: whether to continue boosting interest rates in its ongoing effort to tame inflation, or ease up due to the pressure from higher rates on the banking industry.
"In the fallout from the sudden collapse of Silicon Valley Bank, the debate now centers on whether the Fed holds rates steady or continues to increase the policy rate by 25bps on March 22," noted Kathy Bostjancic, chief economist for Nationwide, in a report.
She added, "If financial market conditions remain volatile, the Fed might even skip raising rates on March 22, which looks increasingly likely."
Housing was the largest contributor to inflation last month, accounting for more than 70% of the increase, the Labor Department said. Prices for food, recreation and household furnishings also rose.
Core inflation, or consumer prices excluding gas and food, rose 5.5% at an annual rate last month.
This is a developing story.