Silicon Valley Bank and inflation complicate the Fed’s next move

Howdy team. Senior reporter Phil Rosen here.

Everyday now we've been talking about Silicon Valley Bank — SVB — and I've had to catch myself several times from saying SBF — Sam Bankman-Fried — the guy behind the other big financial collapse in recent months.

For today (surprise, surprise) there's more to break down about SVB.

Specifically, how this week's turmoil across the banking system could end up swaying how much you pay on credit cards, loans, and car payments.

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1. We learned yesterday that inflation cooled as expected in February, falling in line with expectations at a 6.0% annual rate.

But this month, there was very little chatter about what's usually the most pivotal economic data point ahead of a Fed meeting.

The CPI report was instead overshadowed by the bank turmoil, and Moody's yesterday downgraded its outlook for the entire US banking system in the wake of SVB and Signature Bank's failures.

In effect, the crisis may have thrown a wrench into the Fed's policy plan.

Just a week ago, markets had been betting pretty squarely on a half-point rate hike at the March Fed meeting following Jerome Powell's hawkish comments to Congress.

Odds for a jumbo hike have since gone to zero, according to CME's FedWatch Tool, with traders now putting roughly 62% odds to a 25-basis-point move, which would match February's increase.

"Just a few days ago, the CPI data release was the key crystal ball to look at to ascertain the Fed's next move," said Seema Shah, chief global strategist at Principal Asset Management.

Now, the economic data has taken a backseat.

"The ferocity of financial system stress will dictate Fed policy next week," Shah added.

Should the Fed in fact ease up with a smaller hike or pause, central bankers would be dialing back their aggressive maneuvers for all the wrong reasons, according to DataTrek Research.

That's to say any policy loosening would be driven by recent banking-sector catastrophes rather than the usual economic indicators.

Nicholas Colas, cofounder of DataTrek, said lower rates end up hurting the Fed's "efforts to reduce consumption and the incremental inflation that it creates."

Besides announcing an investigation into the Fed's oversight of SVB, Powell and his fellow Fed officials haven't piped up about how the last several days could sway policy, but they have repeatedly said they are more concerned about doing too little than too much.

"A pause in March is possible," Comerica's chief economist, Bill Adams, wrote in a note Tuesday. "But they are more likely to hike and risk erring on the side of too much restraint."

What's your rate hike expectation for next week's meeting?

A) No rate hike at all

B) 25 basis points

C) 50 basis points

Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.

In other news:

2. US stock futures fall early Wednesday, as investors mull the latest inflation report. Bank stocks are rising again as nerves calm — though SVB-driven fears are still niggling. Here are the latest market moves.

3. Earnings on deck: Samsung, Adobe, and more, all reporting.

4. Bank of America picked out a batch of financial stocks that offer upside right now amid the chaos. Even as many names in the sector have shed market value, some look poised to rise. These are the 23 stocks BofA likes best.

5. SVB completely screws things up for companies with bad credit. The chaos is set to make it a lot more expensive for companies to raise capital, as high yield bond spreads blow out. Here's what to know.

6. Regional bank stocks rallied Tuesday following Monday's crash. Markets began to reflect some reassurance in the financial sector yesterday as policymakers and regulators try and soothe investors' nerves. In another closely-watched gauge of market temperature, "Big Short" investor Michael Burry wrote in a now-deleted tweet: "I am not seeing true danger here."

7. Still confused about Silicon Valley Bank? The aftermath of the worst bank failure since 2008 will have broad implications on markets, finance, and interest rates. Read Insider's full explainer.

8. This real estate investor says his firm holds $282 million in assets. He shared eight tips that will give anyone an edge — and he said the strategies even work for beginners who have no cash to start.

9. BofA's stock chief is eyeing a "tremendous opportunity" that's just opened up for investors. She said the Fed and macro factors should no longer be at the center of your investment decisions — and thinks it's time to make these specific adjustments for stronger returns.

10. Bitcoin notched a nine-month high after Tuesday's inflation clocked in. The token soared 15% as the February CPI print fueled more speculation for a smaller rate hike. Ether, the second largest crypto by market value, also rallied on the news.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.