The Federal Reserve will cut its benchmark interest rate by a quarter percentage-point and stop reducing the size of its balance sheet at its upcoming policy meeting next week, according to economists at Nomura Securities.

“In reaction to looming financial stability risks, we now expect the Fed to cut rates,” Nomura economists Aichi Amemiya and Jacob Meyer wrote Monday in a note. “We also expect the Fed to stop quantitative tightening,” they added, noting that “ending QT should help keep the amount of reserves more ample than they would be otherwise.”

The Fed, in concert with other regulators, rolled out measures over the weekend including a backstop for bank deposits to shore up confidence in the banking system after the collapse of Silicon Valley Bank on Friday. (Continue Reading – Bloomberg)

There is a saying that the Federal Reserve raises interest rates until something breaks. A big surprise over the past year had been that nothing broke.

No more. A sharp selloff in regional bank stocks Monday following the collapse of Silicon Valley Bank and Signature Bank risks pushing the Fed uncomfortably close to the one place it wanted to avoid over the past year: resolving a financial-stability trauma at the same time it fights high inflation.

The situation could force Fed Chair Jerome Powell and his colleagues into choosing what problem demands the central bank’s top focus. (Continue Reading – WSJ)

U.S. consumer prices likely rose at a solid pace in February amid sticky rental housing costs, but economists are divided on whether the data will be enough to push the Federal Reserve to hike interest rates again next week after the failure of two regional banks.

The report from the Labor Department on Tuesday, which is also expected to show goods inflation picked up in part due to an anticipated rebound in prices of used motor vehicles, will be published amid financial market turmoil triggered by the collapse of Silicon Valley Bank in California and Signature Bank in New York, which forced regulators to take emergency measures to shore up confidence in the banking system.

It will also be released a week before the Fed begins a two-day policy meeting, and follow on the heels of a report last Friday showing a still-tight labor market, but cooling wage inflation. Economists said Tuesday's report remained important for policymakers despite the angst in financial markets. (Continue Reading – Reuters)