March 12, 2025: US Inflation Cools to 2.8%—Fed Rate Cut Hopes Strengthen

February's inflation print landed softer than expected at 2.8% year-over-year, while core CPI held steady at 3.1%. This delicate balance between cooling headline numbers and sticky core inflation sets up a crucial inflection point for markets as Fed rate cut speculation intensifies.

Core Analysis

Key Developments:

  • Headline CPI: 0.2% MoM (vs 0.3% forecast); 2.8% YoY (vs 2.9% expected)
  • Core CPI (ex-food/energy): 3.1% YoY, aligned with consensus
  • Shelter costs: +0.3% MoM, driving nearly half of monthly increase

Sector Breakdown:

  • Consumer Staples: Food index +0.2% MoM, with eggs surging 10.4%
  • Energy: Mixed picture with gasoline -1.0% but natural gas +6.0% annually
  • Services: Airlines fares declined -4.0%, while insurance costs jumped +11.1% YoY

Strategic Playbook

Short-Term (Traders):

  • Consider tactical long positions in rate-sensitive sectors (REITs, Utilities)
  • Watch for potential tech sector momentum as rate cut expectations strengthen

Long-Term (Investors):

  • Maintain balanced exposure between growth and value given mixed inflation signals
  • Consider increasing duration in fixed income portfolios as rate cut timeline firms up

Forward Outlook

Catalysts:

  • Next Fed meeting implications for rate cut trajectory
  • Q1 2025 earnings season impact on profit margins
  • Employment data for wage pressure signals

Risk Radar:

  • Sticky core services inflation could delay Fed easing
  • Rising recession probability (JP Morgan: 40%, Moody's: 35%)
  • Goldman Sachs lowered 2025 US GDP forecast to 1.7%