On the surface, February’s inflation data released this week brought some encouraging news. But underneath, there were signs likely to keep the Federal Reserve on hold when it comes to interest rates.
While the consumer and producer price indexes both were lower than anticipated, that won’t necessarily be reflected in the main measure the Fed uses to gauge inflation.
Because of some byzantine math and trends in a few key areas beneath the headline readings, policymakers are unlikely to take a lot of comfort in these numbers, according to multiple Wall Street economists.
“In short, progress on inflation has started off 2025 on the wrong foot,” Bank of America economist Stephen Juneau said in a note. “Our forecast for PCE inflation reinforces our view that inflation is unlikely to fall enough for the Fed to cut this year, especially given policy changes that boost inflation. We maintain our view that policy rates will stay on hold through year-end unless activity data really weakens.”
Markets agree, at least for now. Traders are assigning virtually no probability of a cut at next week’s Federal Open Market Committee meeting and only about a 1-in-4 chance of a reduction in May, according to CME Group calculations.
