The March 2025 economic data is now in the rearview, and markets have had some time to digest the numbers.

Inflation:

The slight 0.1% decline in CPI month-over-month confirmed a continued cooling trend in consumer prices. Year-over-year inflation at 2.4% brought the metric closer to the Fed’s 2% target. However, the Core CPI—which strips out volatile food and energy prices—rose 0.1%, maintaining a 2.8% annual rate. This suggests that while headline inflation is easing, underlying price pressures haven't entirely disappeared.

Labor Market:

Jobless claims nudged up by 4,000 to 223,000, marking the sixth straight week under 226,000. Despite the uptick, claims are still historically low—signaling labor market strength and resilience.

What This Meant for Markets and Policy:

Market Reaction:

Investors largely interpreted the data as a “Goldilocks” scenario—not too hot, not too cold. The moderation in inflation, coupled with a strong labor market, supported equity markets and reduced fears of an imminent recession.

Interest Rates & Fed Outlook:

The CPI print increased expectations that the Federal Reserve might begin considering rate cuts later in 2025, though not imminently. The persistent core inflation gave the Fed reason to stay cautious, but the overall trend toward cooling prices bolstered the case for a more dovish stance in the coming quarters.

Bottom Line:

With inflation gradually easing and the labor market remaining solid, the Fed likely feels less urgency to act aggressively in either direction. Markets are now watching upcoming inflation prints and employment data closely for clues about the timing of any rate moves.
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