The U.S. Fed’s Dilemma

By guest author Jeff Sparshott from the Wall Street Journal.

March 15, 2023

Inflation eased in February but remained stubbornly high, presenting a challenge for the Federal Reserve as it confronts how to slow the economy with higher interest rates at the same time it moves to stem banking problems. The consumer-price index, a closely watched inflation gauge, rose 6% in February from a year earlier, down from a 6.4 % gain the prior month, the Labour Department said. It was the smallest increase since September 2021. When excluding volatile food and energy costs, prices advanced a slightly slower 5.5 %. Economists view so-called core prices as a better indicator of future inflation, Gabriel T. Rubin and Nick Timiraos report.

Monthly data showed price pressures persisted in many corners of the economy. Core prices increased by a seasonally adjusted 0.5 % in February, the largest monthly gain in five months. Shelter costs rose 0.8 % over the month, matching the largest monthly gain since the 1980s.

Economists said Tuesday’s (March 14, 2023) consumer-price index report underscored the urgency of the Fed’s inflation fight. Several said they thought it made officials more likely to raise rates next week by a quarter percentage point as long as the banking sector didn’t appear to come under additional stress ahead of its rate decision.


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