U.S. stocks rise as inflation data signals lower rate hike

STORY: U.S. consumer prices continued to march higher last month, but the pace of inflation is slowing.

The Labor Department’s closely-watched Consumer Price Index, or CPI, out Tuesday, rose four-tenths of a percent in February after rising half a percent the month before.

That brought the annual inflation rate down to 6%, the lowest it’s been since September of 2021, but still well above the Federal Reserve’s target rate of 2%.

Still stubbornly high inflation matched with a tight labor market has for months hardened the Federal Reserve’s determination to continue raising interest rates, much to investors' dismay.

But recent turmoil in the banking world has complicated the picture for the Fed.

Last week Silicon Valley Bank failed in part due to its portfolio of long-dated Treasury bonds. The value of those bonds sank as rates climbed. Regulators took control of New York's Signature Bank on Sunday, and fears have spread that other regional banks could face similar stresses.

The bank woes come after Fed Chair Jerome Powell told lawmakers last week that the U.S. central bank would likely need to raise rates more than expected:

"Although inflation has been moderating in recent months, the process of getting inflation back down to two percent has a long way to go."

But expectations for a fifty-basis-point increase cooled on news of the banking crisis, and many now expect a smaller, 25-basis-point hike at the next Fed policy meeting later this month.

Wall Street opened higher Tuesday after the inflation report, which investors saw as a sign that the higher rate hike was likely off the table.