US inflation falls to 2.8%, lower than expectations

Inflation in the United States came in lower than expected in February, as prices for goods and services increased at a slower rate than virtually all economists had predicted.

The Bureau of Labor Statistics (BLS) reported Wednesday that the consumer price index (CPI), which tracks the cost of a wide range of goods and services, rose 0.2% for the month, bringing the annual inflation rate to 2.8%.

The economists had forecasted 2.9% for the year and 0.3% for the month, but inflation didn’t rise as much as expected.

The core CPI, which removes food and energy prices, also increased by 0.2% in February and hit 3.1% over the past 12 months. That number also fell short of projections, which were 3.2% for the year and 0.3% for the month.

Markets react as inflation data changes investor expectations

Stock markets responded immediately after the report was released. S&P 500 futures jumped 1.1%, up from 0.8% before the data was made public. Meanwhile, Treasury yields rose, and the U.S. dollar climbed 0.2% against a basket of six other major currencies.

The biggest driver of the CPI increase was shelter costs, which make up more than one-third of the index. Those costs rose by 0.3% for the month, lower than in January, but they still accounted for nearly half of the total inflation increase.

The BLS pointed out that this figure includes a category where homeowners estimate how much rent they would receive if they leased out their property.

Other price movements included a 0.2% rise in both food and energy costs. Used car prices surged 0.9%, and apparel prices increased 0.6%. The biggest surge came from eggs, which shot up by 10.4% for the month and posted a 58.8% increase over the last 12 months.

The Federal Reserve now faces increased pressure to cut interest rates. Futures markets currently predict two rate cuts this year, with an 85% chance of a third. That expectation ticked up slightly following the inflation report.

Federal Reserve is now under even more pressure as economic uncertainty grows

The Federal Reserve, led by Chair Jerome Powell, is in a tough position. It has to control inflation while avoiding a recession. That balancing act has become even more difficult as Trump’s trade policies continue to be aggressive and unpredictable.

The president’s tariffs on major U.S. trading partners have been rolled out in a chaotic manner, with sudden escalations and reversals nearly every single day for the past week at least.

Despite the concerns, Powell repeated last week that the Fed isn’t rushing to cut rates. He said that the central bank is focused on “separating the signal from the noise” as it evaluates economic conditions. However, the latest inflation data could increase calls for the Fed to move sooner rather than later.

“February’s numbers show that inflation is cooling, but the Fed still has a tough job ahead,” said Robert Kaplan, a former Federal Reserve Bank president. “With markets already pricing in multiple rate cuts, the pressure is on Powell and the committee to act.”

Meanwhile, some analysts believe that if Trump’s trade policies trigger a recession, he won’t care about the political consequences. “The reality is that Trump isn’t running again. He doesn’t need to worry about approval ratings,” said David Rosenberg, an economist who has tracked Trump’s policies since his first term. “If tariffs slow down growth, that’s a problem for the markets, not necessarily for him.”

Analyst Janan Ganesh said in an editorial for FT today that: “Trump is emancipated from public opinion, which did a serviceable job of keeping him in check last time around. If his tariffs induce a recession, or his foreign policies a world crisis, driving his approval rating to hellish depths, what exactly does he lose?”

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