March Inflation Rate Cools Far More Than Expected, Raises Hopes For Near-Term Fed Rate Cuts

Price pressures eased more than expected in March, offering significant relief to concerns over the front-loading effects of trade tariffs and further fueling investor risk-on sentiment following President Donald Trump‘s surprising 90-day tariff pause on Wednesday.

The annual inflation rate fell to 2.4% in March, the lowest level in six months, down from 2.8% in February, according to data released Thursday by the Bureau of Labor Statistics.

The figure was below economist expectations of 2.6%. On a monthly basis, the Consumer Price Index contracted by 0.1%, slowing from the 0.2% increase seen the previous month and below expectations of a 0.1% increase.

It marks the lowest monthly inflation reading since May 2020.

A 6.3% drop in gasoline prices was more than offset by increases in electricity and natural gas indexes. In contrast, the food index rose 0.4% in March, driven by a 0.5% increase in food at home and a 0.4% rise in food away from home.

Shelter costs, which make up nearly a third of the consumer basket, edged up just 0.2%—the smallest monthly increase since August 2021.

Core inflation, which excludes volatile food and energy prices, was up 2.8% year-over-year, the lowest since March 2021.

The outcome was lower than the expected 3% and down from 3.1% in February. Month-over-month, core inflation increased by 0.1%, declining from February's 0.2% pace and below estimates of 0.3%.

Ahead of the March inflation report, traders had priced in a 16% probability of a 25-basis-point rate cut by the Federal Reserve at its upcoming May 7 meeting. By June, markets had factored in a 75% chance of a rate cut.

Measure	March 2025	Consensus	February 2025
Inflation Rate MoM	-0.1% (Lowest since May 2020)	0.1%	0.2%
Inflation Rate YoY	2.4% (Lowest since September 2024)	2.6%	2.8%
Core Inflation Rate MoM	0.1% (Lowest since June 2024)	0.3%	0.2%
Core Inflation Rate YoY	2.8% (Lowest since March 2021)	3%	3.1%

Market Reactions

S&P 500 futures were down 1.6% as of 8:35 a.m. in New York, paring steeper overnight losses following the benign inflation report.

On Wednesday, the index – as tracked by the SPDR S&P 500 ETF Trust SPY – closed 10.5% higher, notching the strongest one-day gain since 2008.

Futures on the Nasdaq 100 were 1.7% lower. A day earlier, tech stocks – tracked by the Invesco QQQ Trust QQQ – rocketed 12%, the largest jump since October 2008. Shares of Apple Inc. AAPL – the world’s largest company by market capitalization – were down 3.5% during the premarket trading Thursday after closing 15% higher a day earlier, setting their best day since January 1998.

Yields on 2-year Treasury notes – which are more sensitive to interest rate expectations – fell by nearly 10 basis points.

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