Inflation Drops in March, But Tariff Impact Could Alter Rate Cut Expectations
U.S. inflation data for March shows a decline in overall prices, while core inflation barely increased, which may reignite speculation about potential Federal Reserve rate cuts in May. However, the timing of these numbers, taken before last week’s tariff announcements, could shift market expectations.
The Consumer Price Index (CPI) in March decreased by 0.1%, contrary to economists’ expectations of a 0.1% increase, following a 0.2% gain in February. Year-over-year, the headline CPI rose 2.4%, below the forecast of 2.6% and a drop from February’s 2.8%.
The core CPI, which excludes food and energy costs, increased only 0.1%, far below the anticipated 0.3% rise and February’s 0.2% gain. On a year-over-year basis, the core CPI grew by 2.8%, missing the 3% forecast and down from 3.1% in February.
In the immediate aftermath of the inflation news, bitcoin (BTC) saw a slight increase, climbing above $82,000. However, U.S. stock index futures are facing pressure on Thursday morning, with the Nasdaq 100 down 2.7% and the S&P 500 down 2.1%.
It’s important to note that the CPI data reflects the period before President Trump’s “Liberation Day” tariff announcements last week, which caused a market panic that was partially recovered following his 90-day tariff pause. Before the tariff pause and subsequent market rebound, traders had been pricing in a rate cut for the Fed’s May meeting, though those odds had decreased to just 17% ahead of the CPI release. Now, the June meeting is expected to be more likely to see a 25 basis point or greater rate cut, with a 75% chance of action.
Looking ahead, all eyes are now on Friday’s Producer Price Index (PPI) report, which could further influence expectations for Fed policy in May.
