Today the inflation data (CPI) for February in the United States was released.
And in a period with war in the Middle East, energy markets in turmoil, and investors desperately looking for a stable foundation, these numbers were more important than ever.
So what do they show? How close or far are we from the Fed’s target? And how are analysts viewing the next moves on interest rates?
The CPI came in at 0.3% on a monthly basis
and 2.4% on a yearly basis.
The core CPI, which excludes food and energy, came in at 0.2% month over month and 2.5% year over year, exactly in line with analysts’ expectations.
Housing, at +0.2%, was the biggest contributor to the monthly increase, but it continues to gradually cool down, which is a positive sign. Gasoline rose 0.8% month over month, but on a yearly basis it is still -5.6%, meaning it remains much lower than last year. Food prices came in at 0.4%. On the other hand, used cars declined -3.2% year over year, and car insurance also decreased.
The key takeaway here is that inflation is now at its lowest level since May 2025. It isn’t accelerating. It’s stabilizing. And that gives the Fed room to think about its next moves without panic.
Of course, inflation is still above the 2% target. But the direction is the right one. And that matters.
However, there is a big caveat. These numbers reflect February, meaning they were collected before the U.S.–Israel war against Iran began on February 28. They don’t reflect anything we’re currently seeing in energy markets. The March data will be the real test. But at least we know that the base we are starting from is relatively stable.
Interest rates currently stand at 3.5%–3.75% after three consecutive cuts last year. The Fed kept them unchanged at the January meeting and is expected to keep them steady in the next three meetings as well.
And this is where things start to get interesting, because analysts don’t agree on what comes next.
Markets, through futures pricing, are expecting one to two rate cuts this year, with the first one around September.
Michael Feroli expects no cuts, arguing that the economy has reached a stable balance.
Bernard Yaros sees two cuts, in June and September, as he expects further progress on inflation.
Jeffrey Roach expects a few more difficult inflation readings but believes that the second half of 2026 could open the door for rate cuts.
At the same time, Jerome Powell stated that the economy is entering 2026 on a stable footing and that current interest rates are appropriate. That suggests the Fed does not see the need for a rushed policy change.
There is also another important development. In May, Powell is expected to step down and be replaced by Kevin Warsh. Warsh has historically been more hawkish, although recently he appears somewhat more open to rate cuts.
In any case, the institutional structure of the Federal Reserve System remains strong. Decisions are made collectively by the 12 members of the Federal Open Market Committee, so everything doesn’t change just because one person changes.
Meanwhile, the war in the Middle East has pushed oil prices higher, and if those prices remain elevated, they will show up in the March inflation data.
But today we also got an important response. The 32 member countries of the International Energy Agency unanimously agreed to release 400 million barrels of oil into the market. This is the largest release in the organization’s history, more than double the 182 million barrels released after the Russian invasion of Ukraine.
How big is that? Roughly four days of global oil production or about 16 days of oil flows through the Persian Gulf.
It doesn’t solve the problem by itself, but it sends a very strong signal of coordination. And the market responded positively.
