• Stocks mixed after hotter-than-expected inflation report
• Markets believe the Fed will begin cutting rates around midyear.

Source: Fred

On Tuesday, markets digested CPI inflation data for the month of February, which came in slightly ahead of expectations for the second month in a row. U.S. headline CPI rose by 3.2% year-over-year in February, above last month’s 3.1% reading and consensus expectations for a 3.1% rise.

Core CPI, which excludes food and energy, rose by 3.8% year-over-year, down from the January reading of 3.9% but above consensus expectations for a 3.7% rise.

Looking underneath the surface, food prices and areas like motor vehicle insurance continue to climb.

However, energy prices have eased broadly, as have used car prices, providing some relief for consumers. Notably, shelter and rent prices in the CPI basket remain elevated.

On a month-over-month basis, core CPI rose by 0.4%, above expectations for a 0.3% gain.

This reading marks the 2nd consecutive month of hotter-than-expected CPI inflation, which could create some uncertainty around the timing of the Fed’s interest rate cuts.

Stocks close higher, S&P 500 notches fresh record

US stocks closed with significant gains on the CPI Day but experienced a slight decline the following day. The S&P 500 hit a new record close, undeterred by consumer price data, as investors continued to hope for reductions in interest rates in the near future.

The market expectations still give the Fed a roughly 60%^[1] probability of delivering its first rate cut at the June meeting.

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1. cmegroup