Bearish stock markets took a break from tariff worries after the U.S. posted lighter inflation rates in February 2025. The Consumer Price Index increased by 2.8% over the last 12 months, slower than in January (of 3%).
Prices for consumer staples, such as housing, groceries, and gasoline eased. The good CPI report could mark the end of slowing inflation before Trump’s tariffs start. In February, egg prices rose the most, up by 58.8%. Still, egg prices fell by around 25% recently. Other food-at-home price increases included instant coffee (8.6%), beef roast (9.5%), and ground beef (+7.8%).
The Fed has a long-term target of 2% annual inflation. When it meets later this month, investors expect the central bank to hold interest rates. Chances of a rate cut rise to 50% for the June 2025 meeting. Treasury bond prices pulled back in 2025 in anticipation of lower rates. However, the 20+ Year Treasury ETF (TLT) yield started to rise at the start of the month. TLT ETF is up by 2.9% YTD. The 7-10 Year Treasury Bond ETF (IEF) returned 2.14% YTD.
While Nasdaq (QQQ) rallied, bank stocks failed to join. JP Morgan (JPM) and State Street (STT) lost 5% and 10%, respectively YTD. Markets are pricing in a higher chance of a recession. Higher prices from tariffs will hurt demand. This lowers economic activity for at least two straight quarters in a row.
