March Inflation Data Shows Decline, But Tariff Announcement Could Alter Fed’s Rate Cut Path

March’s inflation report reveals a decline in U.S. prices, with core inflation rising only marginally, sparking renewed speculation on potential rate cuts by the Federal Reserve. However, the data is from before last week’s significant tariff announcements, which could change the outlook for monetary policy in the coming months.

The Consumer Price Index (CPI) for March dropped by 0.1%, contrary to the forecasted 0.1% increase, following a 0.2% rise in February. On a year-over-year basis, headline CPI rose by 2.4%, below the expected 2.6%, and a decrease from February’s 2.8%.

Core CPI, which excludes volatile food and energy prices, increased only by 0.1%, far lower than the anticipated 0.3%, and well below February’s 0.2% rise. Over the past year, core CPI rose by 2.8%, missing the 3% forecast and down from 3.1% in February.

In the wake of the report, Bitcoin (BTC) experienced a modest jump, briefly climbing above $82,000. On the other hand, U.S. stock index futures are under pressure on Thursday, with the Nasdaq 100 losing 2.7% and the S&P 500 dipping by 2.1%.

It’s crucial to remember that this CPI data predates President Trump’s sweeping tariff pause announced last week, which triggered a short-term market rally. Prior to that, traders had been pricing in a higher likelihood of a rate cut at the Fed’s next meeting in May. However, expectations for such a move have since dwindled to just 17%. With the tariff pause and market recovery, focus is now shifting to June, where a 75% chance of a 25 basis point or greater rate cut remains.

Looking ahead, all eyes will be on Friday’s Producer Price Index (PPI) report, which could influence expectations for the Fed’s next policy decision.