Although changing U.S. trade policies make the outlook more difficult, price growth in February cooled more than anticipated, which is encouraging for markets that have grown alarmed by the prospect of ongoing inflation.
The Bureau of Labor Statistics said Wednesday that the consumer price index increased 2.8% in February compared to the previous year, which was lower than expected and slower than the 3% annual rate in January.
Although changing U.S. trade policies make the outlook more difficult, price growth in February cooled more than anticipated, which is encouraging for markets that have grown alarmed by the prospect of ongoing inflation.
The Bureau of Labor Statistics said Wednesday that the consumer price index increased 2.8% in February compared to the previous year, which was lower than expected and slower than the 3% annual rate in January.
Stock futures initially surged on the report, then retreated. Analysts cautioned that the cooler inflation reading isn’t likely to spur the Federal Reserve to lower interest rates at its meeting next week. That means high borrowing costs for everything from auto loans to credit cards could stay put for a while — while also keeping a lid on any stock gains.
“It doesn’t shift much for the Fed as a lot has happened since this data was collected,” Gregory Faranello, head of U.S. rates trading and strategy for AmeriVet Securities, said in a note to clients Wednesday.
Last week, Fed Chair Jerome Powell stated that the central bank was not in a haste to alter its interest rate-setting strategy. As the outlook changes, he stated, “We are focused on separating the signal from the noise.” “We are in a good position to wait for more clarity and do not need to be in a rush.”
The impact of President Donald Trump’s growing trade conflict with the country’s key trading partners is the primary wild card. The European Union responded to his promised 25% tariffs on steel and aluminum imports on Wednesday by imposing taxes on $28 billion worth of American goods, including motorbikes, boats, and alcoholic beverages.
While Trump entered office promising to reduce prices “immediately,” most mainstream economists say that goal conflicts with his trade policies. The president’s back-and-forth tariff announcements have caused a wave of uncertainty throughout the U.S. economy, upending spending plans of consumers and businesses alike.
“We have massive cross-currents,” Mark Zandi, chief economist at Moody’s analytics, said ahead of the CPI release. “We have tariffs that will add to inflation but then a weaker economy that is detracting. My sense is that we’re not going to see further progress toward the [Federal Reserve’s] 2% inflation goal in the near future.”
Zandi said, “You do not even need a recession—the only reason we would go back to that target is if the economy really gets nailed here and stall out.” “The economy is collapsing, so inflation could occur, but it would be for the wrong reasons.”
According to a poll published Tuesday by the National Federation of Small Businesses, nearly one-third of small businesses are increasing their pricing. The largest one-month increase since April 2021 and the third-highest on record, that share increased by 10 percentage points from January. Meanwhile, compared to a year ago, the percentage of those cutting prices has decreased by roughly 10 points.
“Inflation is still a significant issue, coming in second only to labor quality,” stated NFIB Chief Economist Bill Dunkelberg in the statement.
As consumers’ personal financial outlooks worsen, their forecasts for inflation are also modestly increasing, at least in the short term, according to a separate monthly survey released this week by the New York Federal Reserve.