In this video, Vanessa Welch, Empower vice president for financial insights, and Marta Norton, Empower chief investment strategist, break down the Consumer Price Index report for February 2025. Here is a transcript:

Vanessa Welch: Is this CPI report the calm before the storm?

Welch: Good morning. I'm Vanessa Welch, joined by Empower's chief investment strategist, Marta Norton. The February CPI report just dropped, and it is below expectations on headline and core. Marta, this seems like some good news after a really tough week.

Marta Norton: That was the immediate reaction by the markets, at least. We saw futures rally as the report hit. And of course, we might see rate expectations change — expectations for a cut increase. Powell said back in January that rates were well above the neutral rate, and it's really been inflation that's been holding them back from cutting. So, if we see changes there, we might see the market get excited about the idea of a cut.

Welch: So, let me follow up on that one, Marta. Does today's inflation report change the odds of a rate cut at next week's Fed meeting — do you think?

Norton: No. I don't think so. I would imagine the Fed will remain on hold in March, with the real force on looking at the sustainable trend and inflation. And of course, with tariff policy and other uncertainties, they may want a bit more data than usual. So, we don't know exactly how the future course of rate cuts will look, but it's hard to imagine a cut coming in March.

Welch: Yeah, and prices right now at the grocery store still feel really high. Consumer expectations have climbed on inflation. Recent surveys show Americans are worried about rising prices. Does this report alleviate any of those concerns?

Norton: Well, it's certainly good to have some good news. When we think about the consumer, I think there are two things that are coming to mind. I think, of course, to your point, it's those grocery store prices. It's the stickiness that we've seen in inflation, but it's also the tariff talk. And we see that in all the headlines and all the reminders and what that could mean for cost — and so I think consumers are on edge for that reason as well. And until we have greater certainty or clarity around what that actually looks like from a cost perspective, I think the consumer is going to be on edge.

Welch: Marta, let's talk housing costs now. You've often highlighted shelter costs and what the Fed calls “supercore” services as key inflation drivers. It seems like today's numbers show some improvements in those trouble spots.

Norton: Absolutely — another happy area of the report. We saw some moderation around shelter. We saw some moderation around supercore, which is, of course, services without the housing component. So we're, of course, going to want to continue to watch it. It's that tired refrain of needing to see what that sustainable long-term trend is. My expectation is that we will see movement south over the course of the year. Now the tariffs, those affect the good side of the equation.

Welch: Yeah, speaking more broadly on those tariffs, the 25% tariffs on Canadian and Mexican imports set to begin April 2nd. Is this CPI report the calm before the storm, so to speak?

Norton: I think that's the way a lot of investors are looking at it. This report isn't going to capture the tariff impact — maybe next report doesn't really fully capture the tariff impact. So, it's something that investors are going to want to watch inflation very closely over a longer period, to see what that actually looks like in the numbers.

Welch: And Marta, some pretty big names are sounding alarm bells right now. Goldman Sachs just raised its recession probability to one in five. Former treasury secretary Larry Summers called these tariffs the “worst trade policy” to date and a “self-inflicted” injury. Is he overreacting?

Norton: Well, there's going to be a lot of strong opinions around a shift in fiscal policy of this magnitude. There's also going be a lot of strong opinions around politics in general. Here's what we do know: We do know that businesses like certainty, and they like lower cost — and that those things are often good for consumers as well. And in the current climate, we have less certainty, and we have concern over what costs are going to look like. As long as those variables are in play, I think we can see volatility in the markets — and consumers and sentiment largely on edge.

Welch: Sounds like the bottom line is: There is some good news here today, but we still need to watch the data very closely, as policy is developing in real time. Marta, thank you as always. Great insights on this important inflation report. We're going be back on Wednesday — next Wednesday — when the Federal Reserve makes its decision on interest rates. Thanks so much for watching Taking Stock, and have a great rest of the week.