U.S. Inflation Slows to 6% in February, Relief for Investors as Federal Reserve Remains Patient with Interest Rate Hikes

U.S. Inflation Slows in February

The latest Consumer Price Index reading released Tuesday by the U.S. Bureau of Labor Statistics showed that inflation cooled to an annual rate of 6% in February. This is lower than January’s 6.4% year-over-year level and in line with economists’ forecasts.

Food prices rose 0.4% last month since January compared with 0.5% the month before, but remain broadly steeper than a year ago — up 9.5% on since last February. Energy costs continued to fall, with prices 5.2% higher in February year-over-year compared with an 8.7% increase in January.

The report on inflation was expected to be the most important data of the week, if not month, a week ago. The worry at the time was that inflation is staying stubbornly high, which could force the Federal Reserve to pick up the pace again on its hikes to interest rates. Such hikes can have a ripple effect on the economy, leading to higher borrowing costs for consumers and businesses.

The S&P 500 rose 22 points, or 0.6%, to 3,878 as of 3:12 p.m. Eastern time after the report was released. This indicates that investors are relieved that inflation is still high but heading lower.

The Federal Reserve has said it will be patient with interest rate hikes and will continue to monitor inflation closely. It is likely that the Fed will keep rates steady until inflation is closer to its 2% target rate.