U.S. CPI Slows Down: Markets Catch Their Breath
The latest U.S. Consumer Price Index for February 2025 poked the markets—but the good news? Inflation has taken a breather, giving Fed watchers a brief sigh of relief. Below we unpack what happened, how investors reacted, and what it could mean for the Fed’s next move.
Dollar Drama
- The DXY dipped a touch in the wake of the CPI release, only to snap back, climbing 0.2 % today and ending a six‑day slump.
- It’s still looking upbeat amid an otherwise shaky backdrop.
Equity Easing
- The S&P 500 nudged higher by 0.2 %, mainly because the inflation numbers fell short of expectations:
- Month‑over‑month: 0.2 % (vs. the anticipated 0.3 %)
- Year‑over‑year: 2.8 % (vs. the projected 2.9 %)
- Investors are feeling a bit more optimistic now that price growth appears to be slowing, but they’re not jumping to conclusions just yet.
Key Inflation Takeaways
- Annual rate fell from 3 % in January to 2.8 % in February, undercutting the “2.9 %” forecast.
- Core inflation dropped to 3.1 % YoY—this is the lowest since April 2021—down from last month’s 3.3 %.
Why the Fed Is Staying Cautious
- Even with softer headline numbers, the Fed still keeps a watchful eye on labor market health and price trends for essentials.
- Food and energy are still stubbornly pricey in some pockets, which means inflation risks remain alive.
- Current airfare cuts (‑4 %) and gentle gasoline drops (‑1 %) helped pull inflation down, but the fight isn’t over.
- Real wage growth is modest (‑0.1 % MoM, 1.2 % YoY), so the Fed can’t ease off entirely just yet.
Global Market Context
- Geo‑politics: A potential ceasefire between Ukraine and Russia may lift risk appetite, but any hiccup could reignite safe‑haven demand.
- Emerging‑market currencies are still rattled by volatility—what happens in the U.S. and the global trade scene will shape their fortunes.
Bottom line: Ferguson’s data suggests a calmer inflation path, but the Fed’s playbook remains conservative. Investors should stay tuned for the next cycle of policy cues.
