U.S. Inflation Drops to 2.8% in February, Boosting Hopes for Rapid Fed Rate Cuts!

Inflation in the U.S. decreased more than expected in February, which helps the Federal Reserve to cut interest rates as early as this spring. The Bureau of Labor Statistics published new data this Wednesday morning regarding inflation, announcing the Consumer Price Index(CPI) increased 0.2% in February. This is lower than the anticipated 0.3%, and is much lower than January’s number of 0.5%.

When looking at inflation on a yearly basis, the headline CPI only rose 2.8%, contrary to the expectations of 2.9%, as well as January’s 3.0%. These decreases in inflation indicate that there may finally be a decrease in price pressure, which strengthens market hopes that the Federal Reserve will soon cut interest rates to prioritize the development of the economy.

Core CPI, which strips away food and energy prices, also came down softer than anticipated. It rose 0.2% compared to the expectations of 0.3% and January’s 0.4%. On a yearly scale, core CPI grew 3.1%, which is more than the estimates of 3.2% and January’s 3.3%.

Market Adaptations and Economic Predictions

The financial markets generously reacted to these inflation prints. In the few minutes after the announcement BTC (Bitcoin) went up more than 1% and is now $84,100. The Nasdaq 100 futures also expanded their previous gains, now being 1.5% greater, while bonds, the dollar, and gold do not seem to be affected by this.

The positive inflation report comes after a difficult timespan for the S&P 500. The index alone has had almost a 10% decrease within the last month due to worries surrounding the trade war, inflation surpassing the expected percentage, and a lack of growth in the economy. Bitcoin, known for the high of $109,000 before Trumps inauguration, has seen a roughly 30% drop recently as well.

Revised rate cuts sharpened bets firmly

Before any of these reports, it was believed there was a 60% chance of no rate cuts in May, but after seeing the softer figures, it could have traders believe there is a viable opportunity for more rate cuts within the next coming meetings. There will likely be sharper signals that rate cuts will be announced in the near future by the trade day within the Fed.

Report after report drags traders expectations down when compared to the figures that have been previously set. While Fed officials have constantly claimed their need for more stable inflation data, price systems appear to be cooling. From this perspective, making it seem like the Federal bank could give a much needed green light to cut rates more aggressively moving forth.

Focus on Producer Price Index

The focus now shifts to the PPI report set to be released on Thursday, which could shed further light on the inflation outlook. Signs of relief on wholesale price pressures would strengthen the argument for rate cuts, as well as bolster markets expecting a softer policy stance.

With inflation cooling and signs of a more strained economic growth, the Fed’s decision-making process will come under more scrutiny. As the spring and summer rate setting meetings draw near, markets will be on the lookout for any further hints from policymakers.