The U.S. economy finds itself at a curious intersection with mounting uncertainty as we navigate through the second quarter of 2025. Recent data shows encouraging signs of disinflation, but both the Federal Reserve and market participants remain cautious about several looming challenges.
March’s Consumer Price Index (CPI) data delivered welcome news as prices actually fell by 0.1% during the month. On a year-over-year basis, headline inflation eased to 2.4% from 2.8% previously. Core prices (excluding volatile food and energy) rose by just 0.06% for the month, with the annual core inflation rate moderating to 2.8% from 3.1%. This week, we’ll get April’s inflation numbers, with economists forecasting a modest 0.2% increase in headline inflation and a 0.3% rise in core CPI. On a year-over-year basis, headline inflation is expected to further ease to 2.3%.
The labor market’s cooling also points to lower inflation. Compensation increases have decelerated to levels consistent with price inflation falling below 2% – a key metric the Fed watches closely as a leading indicator of future price pressures.
