MARCH 17, 2025 – INFLATION COOLS AND CONSUMER SENTIMENT FALLS
Inflation cooled to 2.8 percent in February, down from a 3 percent annualized rate in January, slightly below expectations. The joy may be short lived, as tariffs are threatening to create uncertainty and raise prices in the upcoming months. To that, consumer sentiment fell almost 10 percent in February, and January’s consumer spending had its largest monthly drop in four years.
Core inflation, excluding food and energy, rose 3.1 percent last month, that was the lowest year-over-year number since 2021, and below estimates of 3.2 percent. Consumer sentiment was reported at 57.9 last week, down from 64.7 last month, far weaker than the expected 63.2. It is at its lowest level since 2022. Frequent changes in government policy are driving the worry, along with labor markets, business conditions and the volatility in the stock market.
These reports are unlikely to affect interest rate policy at the Fed’s regularly scheduled meeting this week. Inflation remains well above the 2 percent target, and if tariffs keep inflation high in the upcoming months, the Fed will be unlikely to resume rate cuts at its June meeting.