U.S. Inflation Cooled in February as Fed Confronts Bank Failures

Elevated inflation cooled modestly in February, as the Federal Reserve faces dual threats of rising prices and financial instability.

The consumer-price index, a closely watched inflation gauge, rose 6% in February from a year earlier, versus a 6.4% gain the prior month, the Labor Department said Tuesday, the slowest pace since September 2021. The smaller increase comes as the Fed contemplates its next interest rate move while confronting price pressures and bank failures.

When excluding volatile food and energy prices, consumer prices advanced 5.5% from a year earlier in February compared with 5.6% in January. Economists view so-called core prices as a better indicator of future inflation.

The inflation rate has cooled from a recent peak last June, but has remained stubbornly high. That combined with a strong labor market and solid consumer spending introduced the possibility that the Fed could raise its benchmark interest rate by a half-percentage-point at its March 21-22 meeting, after opting for a smaller increase in early February.