Near-term US outlook is solid, but clouds are building

Significance

Core personal consumption expenditure inflation is 4.7% year-on-year, above the 2.0% target. The economy is holding up, with the OECD now forecasting GDP growth of 1.5%, up from 0.5% in November. Employment growth is slowing only gradually. These factors argue for rate rises, but banking sector stresses call for caution.

Impacts

• The threat of systemic risk has returned financial stability to the centre of the Fed's concerns.
• Officials try to offload bank rescue costs to the banking sector, but the managed deposits for US bank First Republic failed to revive it.
• Growing internal divisions within central banks over the future trajectory for interest rates will damage their credibility.