The government inflation report being released Tuesday is expected to show that price acceleration in the United States remained chronically high in February, putting the Federal Reserve in an unusually tough position.
With bank share prices cratering Monday and fears of further financial instability roiling markets, most economists now expect the Fed to pause its rate hikes next week to avoid causing any further instability at a delicate moment for the banking system.
Jan Hatzius, chief economist at Goldman Sachs, said Goldman now thinks the Fed's policymakers will pause their rate increases next week. Goldman had previously predicted a quarter-point hike. In a note to clients, Hatzius noted that the Fed, for now, appears even more focused on calming the banking sector and the financial markets than on fighting inflation.
The Fed may get some unintentional help in its inflation fight from the aftereffects of the collapse of Silicon Valley Bank and New York-based Signature Bank. In response, many small and medium-size banks may pull back on lending to shore up their finances. A lower pace of lending could help cool the economy and slow inflation.
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