CPI Report: Inflation Down in February. Will Fed Cut Rates?
Annual inflation slowed in February, according to U.S. Bureau of Labor Statistics (BLS) data released on Wednesday. The 2.8% inflation rate is slightly less than January’s 3% and December’s 2.9%.
Inflation was down in February across the board, with core prices excluding food and energy rising at half the January pace. Lower airfare, shelter costs, and auto insurance prices contributed to the decline, per BLS data.
“I don’t think the data changes the narrative much,” J.P. Morgan Wealth Management’s Head of Investment Strategy Elyse Ausenbaugh told Entrepreneur in an emailed statement. “We’re encouraging investors to focus on both seizing the opportunity to leg-in to long-term, strategic risk allocations and considerations for enhancing portfolio resilience.”
The prices of core goods, not including the volatile food and energy categories, increased 3.1% year-over-year — the slowest pace since April 2021. The rising cost of medical care, used cars, and apparel contributed to the 3.1% increase.
On a monthly basis, the Consumer Price Index (CPI) rose less than expected with a 0.2% month-over-month increase in February, less than half of January’s 0.5% increase.
Energy prices rose 0.2% from January to February, as higher fuel oil and natural gas prices offset declining gasoline prices. Though egg prices were up 10% month-over-month, the food category overall rose by the least since August 2024, with prices up 0.2% in February.
“February’s soft inflation data was certainly welcome,” Moody’s Analytics Economist Matt Colyar told Entrepreneur in an email. “Using February’s report as a snapshot, all looks good. Core goods prices rose a manageable 0.2%, the CPI for medical care services climbed 0.3%, and shelter inflation downshifted again.”
How Will the CPI Report Affect Rate Cuts?
The February CPI report shows that the Fed is approaching its 2% inflation target, but not there yet, leading economists to predict that it will hold steady at the March 18-19 FOMC meeting and maintain its current rate range of 4.25% to 4.50% for the next few months.
EY Chief Economist Gregory Daco stated that he predicts two rate cuts in the latter half of the year, in June and December. At the March FOMC meeting, “the combination of still-elevated inflation and resilient labor market conditions will keep the Fed on hold,” he told Entrepreneur in an email.
“We believe the Fed will maintain a wait-and-see approach over the coming months,” Daco said.
Ausenbaugh, meanwhile agrees that the Fed “can hold rates steady at next week’s meeting” and says the move will “maintain patience until we better understand the real [economic] impacts of tariffs and other policy changes.”
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