The Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May, as a government report showed U.S. inflation remained high in February, and concerns of a long-lasting banking crisis eased.
Prices of fed funds futures after the report reflected solid bets on an increase in the benchmark rate to a 4.75%-5% range at the Fed’s March 21-22 meeting, with about a 15% chance seen of no change. By May the benchmark rate is seen rising further to a range of 5.00%-5.25%.
Until late last week financial markets had been pricing in a bigger half-point rate hike to stem persistently high inflation.
Expectations shifted abruptly after a bank run triggered the failure of two banks and a dramatic move over the weekend by the Fed and other U.S. regulators to ensure the safety of deposits and shore up confidence in the banking system.
With fears of financial system instability roiling markets, futures traders at one point were pricing in no interest-rate hike in March and about 75 basis points of interest rate cuts by the end of 2023.
Bank stocks on Tuesday erased some of their recent large losses. Meanwhile the Labor Department’s inflation report showed a 6% rise in the consumer price index last month from a year earlier. It was the smallest gain in a year and a half, but far too high for the central bank to declare its work is done.
This report’s information was first seen on REUTERS; to read more, click this link.
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