Economic Update: February’s Slower U.S. Inflation and Fed Outlook

U.S. consumer prices rose slower than expected in February, signaling a temporary relief before new tariffs are set to push costs higher in the coming months.

The Consumer Price Index (CPI) increased 0.2% last month after a 0.5% jump in January, with year-on-year inflation easing to 2.8% from January’s 3.0%, according to the Labor Department.

Excluding food and energy, core CPI rose 0.2% in February after a 0.4% increase in January, bringing the annual core rate to 3.1% from 3.3%.

President Donald Trump’s recent tariff hikes — including a 20% increase on Chinese imports and a 25% duty on Canadian and Mexican goods — are expected to fuel inflation further, despite a temporary exemption under the U.S.-Mexico-Canada Agreement.

Steel and aluminum tariffs, implemented this week, have sparked swift retaliation from Europe, adding more pressure to future price increases.

The Federal Reserve is expected to keep interest rates steady next week, maintaining the 4.25%-4.50% range, though markets anticipate rate cuts by June due to worsening economic conditions.

Goldman Sachs predicts core Personal Consumption Expenditures (PCE) inflation, a key Fed measure, will climb to 3% by December from January’s 2.65%.