We expect more moderate gains than last month for both headline CPI (+0.27% forecast vs. +0.47% previously), as well as core (+0.24% vs. +0.45%). We believe that headline CPI YoY growth would fall a tenth to 2.9%, while that for core YoY growth would drop by two to 3.1%. We are looking at stable primary rents (0.31% vs. 0.35%) and OER (+0.32% vs +0.31%). In super core services (+0.24% vs. +0.75%), we are expecting much more muted gains than we saw in Jan data. Hospital and related services (+0.09% vs. +0.86%) are usually on the softer side after seeing strong January gains. After early-year price resets stalled disinflation in January, policymakers will be looking for real progress in February’s CPI which looks to us that it won’t be there. While the impact from seasonal price hikes in January appears to have partially reversed, the bi-monthly sampling by the BLS likely made some of the January strength persist into February. While the market is pricing in 70 bps of cut in CY25, we believe the push for these 3 rate cuts might be coming from the employment side mandate of the Fed & not the price mandate. Some softening of broad labor market conditions likely with the unemployment rate at or above the highs from last year combined with a noticeable slowdown in payrolls (sub 50k nos for 2 or more than 2 months) will be necessary to trigger rate cuts. A sharper tightening of financial conditions could also boost prospects for earlier easing. Given the decent February jobs report, it is hard to see these conditions emerging before the June FOMC meeting. However, recent weeks have made clear that narratives can shift quickly. We see 3 rate cuts in CY25 by Fed as base case.
