The Trump administration's tariffs, which research shows were largely passed onto customers in the form of higher prices, have had a weaker impact on inflation than initially feared, as evidenced by the economy's strong performance in 2025.
Remaining price pressures are likely to come from people having more money in their pockets due to tax refunds, lower interest rates and an increase in business investment, according to Kates.
"Those are things that could be keeping inflation sticky more so than the tariffs, simply because a lot of that has already been phased in," he said.
What the CPI data means for interest rates
Although inflation is loosening its grip on consumers, experts think the Fed is likely to hold off on cutting interest rates in the short-term to minimize the risk of spurring excessively strong economic growth.
"With core inflation at an almost four‑year low and the Fed's 2% target finally within reach, this is a reassuring print for markets," Seema Shah, chief global strategist at Principal Asset Management, said in an email. "For the Fed, however, it still falls short of justifying near‑term rate cuts."
Recent data point to solid economic growth, reducing the need for a Fed cut. The nation's gross domestic product expanded at a robust 4.3% annual pace in the third quarter, the strongest growth in two years.
The job market also remains healthy, with employers adding a stronger-than-expected 130,000 jobs in January, according to employment figures released earlier this week.
Wall Street analyst Adam Crisafulli, head of Vital Knowledge, said in a research note Friday that he expects the Fed to next cut interest rates at its meeting in June.
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