Inflation probably slowed last month — but that won’t matter to the Fed

Inflation probably slowed last month, but Donald Trump’s trade war with Canada and other economic headwinds mean the Federal Reserve isn’t likely to cut interest rates when it meets next week and possibly not until 2026, some economists said.

The CPI is expected to increase 0.3% in February from January, slowing from the prior month’s 0.5% gain, according to the consensus forecast in FactSet (FDS-2.32%). Annual headline and core inflation may have eased slightly to 2.9% and 3.2%, respectively.

Trump’s trade and immigration policies are complicating the Fed’s efforts to bring inflation down to the 2% level. S&P Global (SPGI-1.10%) projects that new tariffs, if fully implemented, will boost CPI by 50 to 70 basis points, with annual inflation to hover around 3% through 2025. With American households citing rising prices as their top concern, that’s probably too fast.

“Progress on inflation has stalled,” Bank of America (BAC-0.25%) economists wrote ahead of the report, projecting that the Fed will keep rates on hold through 2026, given the still-strong labor market. The longer inflation runs above target the harder it will be for policymakers to restore stability, they said.

Not all economists feel that way, with some flagging the risks of a recession in the U.S. as uncertainty reigns over tariffs and the job market begins to feel pressure from layoffs. Uncertainty is making it more difficult for companies to decide whether to invest and hire workers, said Laura Jackson Young, an economics professor at Bentley University.

Jefferies (JEF+2.01%) Chief U.S. Economist Thomas Simons, for example, expects three interest-rate cuts this year — in June, July and September — as the labor market slackens, according to a note released before the data. However, a housing shortage will keep shelter costs elevated, he wrote.