Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

A week ago, I wrote a nice column about the strength of the labor market, and why I thought the Fed would raise rates by 50 basis points at their next meeting. I even wished the great Wes Montgomery a happy 100th birthday.

Who knew that within the next few days, we’d have the second and third largest bank failures in U.S. history?

I don’t want to get too into why these banks failed or whether more will follow, as it’s too soon to answer those questions. It does seem—at least for now—that these failures were due to poor management, and not some systemic issue. How many times have you heard the words "systemic" and "contagion" in the past week? That said, Moody’s cut its outlook for the U.S. banking system to negative, citing a "rapidly deteriorating operating environment."

Unlike 15 years ago, when the value of mortgage-backed securities plummeted, these crashes did not involve a depletion in the value of a specific asset class. SVB and Signature had assets, and they were worth something. Unfortunately, it’s become a lot easier for customers to extract their funds when a bank shares a lot of bad news. SVB customers withdrew $42 billion in one day, which equates to $4.2 billion per hour, or more than $1 million per second.

The government has stepped up to help, saying that depositors at these two banks will get all their money. However, investors in both banks will not be bailed out.

What you need to know is that the stock market volatility we already had this year has now taken steroids. It will also keep the bond market volatile, so expect some serious movement in mortgage rates. Thirty-year rates had been rising recently, but fell this week on this news.

These events will also impact the Fed’s rate decision next week. I had been looking for a 50-basis point hike, but now expect the Fed to hike by just 25. There is the possibility they do nothing, but with inflation still pretty high, I don’t think that would be a good idea. Speaking of inflation, let’s jump to the next headline.

Consumer Prices Up 6% from a Year Ago

The consumer price index rose 0.4% in February, and it was 6% higher than a year ago. Both these increases were in line with expectations, which is nice. That said, a 6% annual rate of inflation is still three times higher than what the Fed wants, so there’s still a lot of work to do.

One potentially concerning number in the report was the higher-than-expected 0.5% increase in core CPI last month, which excludes food and energy prices. Economists look at this number very closely, as it can be a good indicator of which way inflation is heading. For those who want to view the full CPI report, you can find it here.

In other inflation news, the producer price index unexpectedly fell 0.1% in February, but it was up 4.6% from a year ago. Both these numbers were much bett