Finance

Inflation eases in February, but Trump tariffs could derail progress

Published

3 months ago

March 13, 2025

Business Finance News

Prices took a surprise dip in February, according to the latest inflation report. (iStock)

Annual inflation increased to 2.8% in February, an unexpected decline from 3.0% in January, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).

Inflation increased 0.2% monthly after rising 0.5% the previous month. Core inflation, which excludes volatile energy and food prices, grew at a higher pace of 3.1% in February from a year prior, decreasing slightly from the previous month’s rate of 3.3%. Housing inflation (shelter) increased by 4.2%, and food prices accelerated by 2.6% over the past 12 months, up slightly from 2.5% in January. Core inflation and housing recorded their lowest readings since 2021.

Both headline and core prices rose by 0.2% month-over-month, aligning with the Federal Reserve’s target. However, the looming uncertainty over President Donald Trump’s proposed import tariffs and their potential impact on future prices remains a cause for concern.

“The uncertainty around tariffs remains a huge source of concern for investors, consumers, and businesses alike,” Jim Baird, Plante Moran Financial Advisors’ chief investment officer, said in a statement. “Understanding that the rules of the game are changing is one thing; understanding what those rules will be and when they’ll be clearly defined are another thing entirely.”

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CALIFORNIA’S HOMEOWNERS INSURANCE INDUSTRY FACES ROUGH ROAD AHEAD AS WILDFIRES CONTINUE

Fed still likely to hold off on rate cuts

According to First American Senior Economist Sam Williamson, the modest improvement in the CPI report is a positive sign for the Federal Reserve’s ongoing effort to bring down inflation. While it may not be enough to prompt a rate cut in March, it keeps rate cuts on the table.

“Small downside surprise in today’s CPI report is an encouraging sign for the Federal Reserve’s ongoing effort to bring down inflation,” Williamson said. “However, the modest improvement is still not enough to prompt a March rate cut, but it does potentially give the Fed greater flexibility to consider more rate cuts later this year.”

The Federal Reserve, which held interest rates at 4.25% to 4.50% in January, is taking a cautious approach. This is in response to strong economic indicators that have given the central bank more room to wait. Federal Reserve Chair Jerome Powell has stated that the central bank intends to remain cautious about additional rate cuts, as long as the job market remains solid and prices continue to climb.

“Many categories made encouraging disinflation progress last month, including food, energy, and shelter,” Williamson said. “Prices for new vehicles and airline fares actually decreased month over month. However, the impact of new tariffs likely hasn’t materialized yet, leaving uncertainty around inflation as we approach spring, supporting the Fed’s cautious approach in the coming months.”

You can take out a personal loan before future rate hikes to help pay down high-interest debt. Visit Credible to find your personal loan rate without affecting your credit score.

FHFA ANNOUNCES HIGHER MORTGAGE LOAN LIMITS FOR 2025

Housing remains out of reach

Americans who rent or are looking to buy a home still feel the pain of surging housing costs. Shelter inflation, a significant component of overall inflation, is a key factor that needs to be addressed to bring inflation back to the Fed’s 2% target. However, lower shelter inflation won’t impact housing affordability or the lack of housing supply.

“The bad news is that rental rates and home prices aren’t going to decline en masse, particularly given the underinvestment in single-family homes in the post-housing bust era,” Baird said. “Higher prices are likely here to stay. The good news is that shelter inflation has fallen by nearly half from 8.2% nearly two years ago to 4.2% over the past year. That’s a considerable, persistent decline to date, with further runway to return to the pre-COVID era norm.”

A recent realtor.com report on the housing supply gap showed that it reached 3.8 million in 2024 and said it would take 7.5 years to close the housing gap and solve a supply shortage that has been the main driver of the housing affordability crisis.

If you want to become a homeowner, you can find your best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.

MORTGAGE RATES HIT A TWO-MONTH LOW THIS WEEK, REMAIN UNDER 7%

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Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

2 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”