Good day. The Federal Reserve is rethinking a number of its own rules related to midsize banks following the collapse of Silicon Valley Bank and Signature Bank, potentially extending restrictions that currently only apply to the biggest Wall Street firms. Meanwhile, U.S. inflation may have eased a bit, but Tuesday's consumer-price index release showed price pressures persisted in many corners of the economy. The February report underscored the urgency of the Fed’s inflation fight, with several economists saying they thought it made officials more likely to raise rates next week by a quarter percentage point as long as the banking sector didn’t appear to come under additional stress ahead of its rate decision.

Now on to today’s news and analysis.

A raft of tougher capital and liquidity requirements are under review for midsize banks, as well as steps to beef up annual “stress tests” that assess banks’ ability to weather a hypothetical recession, according to a person familiar with the latest thinking among U.S. regulators. The rules could target firms with between $100 billion to $250 billion in assets, which at present escape some of the toughest requirements.

• Biden’s SVB Challenge: Prevent Financial Panic, Avoid Backlash
• Lawmakers Split on Tighter Rules After Silicon Valley Bank Failure
• Regional Bank Chaos Clouds Outlook for Markets
• Social-Media Postings Amplify Anxiety Over SVB Collapse
• Are Taxpayers on the Hook for SVB and Signature Bank Deposits?
• Real-Estate Investor Run on Signature Bank Helped Fuel Its Demise
• First Republic Rallies in Volatile Trading

Inflation eased in February but remained stubbornly high, presenting a challenge for the Federal Reserve as it confronts how to slow the economy with higher interest rates at the same time it moves to stem banking problems. The consumer-price index, a closely watched inflation gauge, rose 6% in February from a year earlier, down from a 6.4% gain the prior month, the Labor Department said. It was the smallest increase since September 2021. When excluding volatile food and energy costs, prices advanced a slightly slower 5.5%. Economists view so-called core prices as a better indicator of future inflation.

• China’s Economy Rebounds, Spurred by Consumption
   

8:15 a.m.: Canada housing starts for February
8:30 a.m.: U.S. producer-price index for February; U.S. retail sales for February
10 a.m.: U.S. business inventories for January; NAHB/Wells Fargo Housing Market Index for March

8:30 a.m.: U.S. housing starts for February; U.S. import and export price indexes for February; U.S. weekly jobless claims
9:15 a.m.: European Central Bank rate decision
9:45 a.m.: European Central Bank rate decision press conference
11:15 a.m.: ECB Podcast with Lagarde presenting latest monetary policy decisions

The Federal Reserve remains likely to raise interest rates by 25 basis points at each of its next three meetings, with a terminal rate of 5.25%-5.5% to be reached in June, Bank of America economists write in a research note about February’s consumer-price index data. “Services inflation remains inconsistent with the Fed’s [2%] target, and while there is increased uncertainty due to the recent news in the banking sector, the Fed still needs to do more to cool off the economy and labor market,” they write.

—Paulo Trevisani

The Bank of England can breathe a sigh of relief after U.K. labor-market data showed wage growth easing, Ashley Webb, U.K. economist at Capital Economics, writes in a note. The monthly rate of overall earnings growth eased in January, meaning the growth in average total pay including bonuses in the three months to January eased from 6.0% to 5.7%, Mr. Webb writes. With the collapse of U.S. lenders including Silicon Valley Bank over the weekend amid tightened financial conditions, the risks to Capital Economics’ forecast that the BOE will raise interest rates next week from 4% to 4.25% are now shifting to the downside, he adds.

—Edward Frankl

The failures of Silicon Valley Bank and Signature Bank appear to be rooted in a “failure of management and supervision,” rather than regulatory shortcomings, a banking trade group said. The Washington, D.C.-based Bank Policy Institute said the banks had “idiosyncratic business models”and also failed to manage interest rate risk. Dealing with that risk is “more art than science" and not subject to prescribed regulatory formulas, BPI said in a statement. SVB was a member of the group.

—Richard Vanderford

The repercussions of the failure of Silicon Valley Bank are enormous, Ken Wilcox,  a former SVB chief executive, writes in The Wall Street Journal. Mr. Wilcox writes that “even if the depositors are made whole, startups may die for want of credit. Thousands of employees may lose their jobs. Many may lose confidence in our banking sector and ultimately in our economy. It may even diminish America’s technological pre-eminence and thus its position in the world.”

Mr. Wilcox is a former CEO of Silicon Valley Bank and author of “Leading Through Culture.”

• U.S. small business confidence improved in February for a second consecutive month but stayed subdued as high inflation and concerns over an economic downturn clouded the short-term outlook. The National Federation of Independent Business said Tuesday its small-business optimism index rose from 90.3 in January to 90.9, its highest since November but still below its historical average of 98. (Dow Jones Newswires)
• Canadian factory sales rebounded in January, driven in part by a recovery in petroleum and coal product shipments and further strong sales of motor vehicles. Sales rose 4.1% from December to a seasonally adjusted 73.93 billion Canadian dollars, the equivalent of about US$53.85 billion, Statistics Canada said Tuesday. (DJN)
• Eurozone industrial production rose more than expected in January, partly offsetting a fall in December, suggesting pressures on the manufacturing sector are starting to ease. Industrial production climbed 0.7% in January compared with the previous month, after a revised 1.3% drop in December, according to data from the European Union statistics agency Eurostat. Economists polled by The Wall Street Journal expected industrial production to rise 0.5%. (DJN)
• German household consumption rose markedly in 2022, driven by inflation prompted by higher energy and food prices, the country's statistics office Destatis said. Private household final consumption expenditure rose a price-adjusted 3.4% in the year, or 10.7% if measured at current prices, Destatis said. (DJN)
• Chinese home sales rebounded in the first two months of the year as Beijing pledged policy support to help reverse the protracted property slump that dented the country's economic growth last year. By value, home sales grew 3.5% on year in the January-February period, compared with a 28.3% drop in the full year of 2022, according to data released by the National Bureau of Statistics. (DJN)
• South Korean President Yoon Suk Yeol’s administration 
  announced a new high-tech industry development initiative, seeking to funnel about $422 billion of private money into key sectors like semiconductors by 2026. It calls for 550 trillion won, equivalent to nearly $422 billion, of investment in six high-tech sectors and the construction of new industrial complexes. A central part of the initiative is to support private companies in investing a combined KRW300 trillion to build what is expected to be the world’s largest system semiconductor cluster by 2042, said Mr. Yoon. (DJN)
• Indonesia's trade surplus widened in February as imports fell sharply during the month. The country recorded a trade surplus of $5.48 billion in February, wider than the $3.87 billion surplus posted the prior month. A poll of analysts by The Wall Street Journal had tipped a $3.00 billion surplus for February. (DJN)
• Singapore's employment excluding migrant domestic workers grew by a record-high 227,800 in 2022, bringing total employment to 2.9% above its pre-pandemic 2019 level, the Ministry of Manpower said. Resident employment continued its steady growth last year, increasing by 26,300, according to data from the ministry. (DJN)

This newsletter is compiled by James Christie in San Francisco.

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