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Inflation Slows to 2.8% in February, Fed Rate Cuts Likely by Midyear

Easing inflation offers market relief, but Trump tariffs threaten to sustain price pressures and complicate economic recovery.

Customers buy fruits and vegetables at an open air evening market in Ahmedabad, India, August 21, 2023. REUTERS/Amit Dave/File Photo
People shop in a supermarket as rising inflation affects consumer prices in Los Angeles, California, U.S., June 13, 2022. REUTERS/Lucy Nicholson/File Photo

Overview

  • The Consumer Price Index (CPI) rose 2.8% year-over-year in February, down from 3% in January, marking the first slowdown in six months.
  • Core inflation, excluding food and energy, also eased to 3.1% annually, though both metrics remain above the Federal Reserve's 2% target.
  • President Trump's tariffs, including new 25% steel and aluminum duties enacted Wednesday, are expected to drive prices higher in the coming months.
  • The Federal Reserve is widely expected to cut interest rates by June, with markets pricing a 77% chance of a reduction at the June meeting.
  • While markets rallied on the inflation report, economists warn that tariffs could fuel inflation and increase recession risks, complicating Fed policy decisions.