Bank collapses cause US inflation to fall sharply

U.S. economists expect U.S. inflation to fall sharply due to tight credit conditions in the U.S. Bloomberg reports. Strict conditions were imposed on the collapse of several US banks.

According to Bloomberg’s monthly survey of economists, US economists have cut their expectations for the consumer price index and the expenditure price index in the first half of 2024.

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Borrowing has become more difficult after the collapse of several US banks, including Silicon Valley Bank, according to consumers and companies. This has the same effect as the Federal Reserve raising interest rates because policymakers now have less to do to reduce inflation.

3.8 percent

Despite the accelerated decline, the Fed still expects the U.S. to face year-end inflation of 3.8 percent. That is nearly twice the 2 percent target. However, pressure on U.S. prices has eased in recent months, although not as much as policymakers expected.

“Stress among banks means that credit conditions are becoming tighter, meaning higher borrowing costs and the economy is likely to fall sharply in times of rapidly weakening housing markets,” said James Knightley, chief international economist at ING. “Inflation will fall more rapidly under these circumstances, leaving room for interest rate cuts.”

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According to economists surveyed by Bloomberg, the probability of a recession in the next 12 months is more than 65 percent, the highest since spring 2020.