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Inflation slowed by more than expected last month, new federal data released Wednesday showed. But President Donald Trump’s trade war and other economic headwinds mean the Federal Reserve isn’t likely to cut interest rates when it meets next week, some economists say — and it might not cut rates until next year.
The CPI increased 0.2% in February from January, less than consensus estimates of a 0.3% increase, and slowing from the prior month’s 0.5% gain. Annual headline and core inflation eased slightly to 2.8% and 3.1%, respectively, also slightly slower than projected.
Trump’s trade and immigration policies are complicating the Fed’s efforts to bring inflation down to its 2% target. S&P Global (SPGI0.00%) projects that new tariffs, if fully implemented, will boost CPI by 50 to 70 basis points, with annual inflation to hover around 3% through 2025. With American households citing rising prices as their top concern, that’s probably too fast.
“Progress on inflation has stalled,” Bank of America (BAC+1.20%) economists wrote ahead of the report, projecting that the Fed will keep rates on hold through 2026, given the still-strong labor market. The longer inflation runs above target the harder it will be for policymakers to restore stability, they said.
Not all economists feel that way, with some flagging the risks of a recession in the U.S. as uncertainty reigns over tariffs and the job market begins to feel pressure from layoffs. Uncertainty is making it more difficult for companies to decide whether to invest and hire workers, said Laura Jackson Young, an economics professor at Bentley University.
Jefferies (JEF+2.29%) Chief U.S. Economist Thomas Simons, for example, expects three interest-rate cuts this year — in June, July and September — as the labor market slackens, according to a note released before the data. However, a housing shortage will keep shelter costs elevated, he wrote.