US Inflation Cools in March, Fueling Speculation Over Potential Fed Rate Cuts

US Inflation Cools in March, Fueling Speculation Over Potential Fed Rate Cuts

US inflation unexpectedly declined in March, raising fresh questions about whether the Federal Reserve might resume interest rate cuts as early as its May meeting.

The Consumer Price Index (CPI) slipped by 0.1% last month, defying economists’ expectations of a 0.1% increase and reversing February’s 0.2% uptick. On an annual basis, headline inflation slowed to 2.4%, notably below the 2.6% forecast and down from February’s 2.8% reading.

Core CPI—which excludes food and energy prices—also showed signs of cooling. It edged up just 0.1% in March, well below projections of 0.3% and February’s 0.2% gain. Year-over-year, the core rate eased to 2.8%, falling short of the 3% consensus and down from the previous month’s 3.1%.

Markets reacted swiftly to the softer-than-expected inflation data. Bitcoin prices saw a modest uptick, climbing above $82,000 shortly after the release. Meanwhile, U.S. stock index futures faced pressure early Thursday, with the Nasdaq 100 down 2.7% and the S&P 500 off by 2.1%.

It’s worth noting that the CPI data predates last week’s headline-grabbing “Liberation Day” tariffs announced by former President Trump, which initially rattled markets before a 90-day pause helped steady investor sentiment.

Ahead of the inflation report, traders had begun dialing back expectations for a May rate cut, with the odds slipping to just 17%. However, focus may now shift to the Fed’s June meeting, where markets are currently pricing in a 75% probability of at least a 25 basis point cut.

Eyes now turn to Friday’s Producer Price Index (PPI) data, which could further influence the Fed’s policy trajectory in the coming months.