• Inflation cooled more than expected in February.
• The consumer price index rose 2.8% year over year, under the expected 2.9% rate.
• Traders think the Federal Reserve will hold interest rates steady next week.

Inflation slowed more than expected last month.

The consumer price index, an inflation measure, increased 2.8% year-over-year in February. That's under the forecast of 2.9% and January's rate of 3%.

It's a reversal after four consecutive months of inflation heating up and is a step toward the Fed's target.

"The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue," Federal Reserve chair Jerome Powell said on Friday at the University of Chicago Booth School of Business 2025 US Monetary Policy Forum.

The index rose 0.2% over the month from January to February. That's below the expected 0.3% and the previous 0.5%. A Bureau of Labor Statistics news release said shelter accounted for almost half of the monthly rise. The shelter index increased 0.3% from a month prior, cooler than January's 0.4%.

While energy prices overall increased in February from a month ago, gas saw a decline over the month after rising 1.8% in January and 4% in December.

"The shelter increase was partially offset by a 4.0-percent decrease in the index for airline fares and a 1.0-percent decline in the index for gasoline," BLS said.

Energy also declined in February from a year ago, with the index dropping by 0.2%. Egg prices increased 58.8% in February from a year prior. The index for food at home, which accounts for groceries, was steady, though. It increased 1.9% year over year again.

Core inflation also slowed. Core CPI, which excludes volatile food and energy prices, increased 3.1% in February from a year prior, below the forecast of 3.2% and January's 3.3%. It increased 0.2% month over month, under the 0.3% forecast and January's 0.4%.

Stock futures rose following the new CPI report.

One of President Donald Trump's priorities in his second term has been trade, with several rounds of threatening or imposing new tariffs on countries like China, Canada, and Mexico. Economists fear that those could raise prices for US consumers, threatening higher inflation in coming months.

"The focus by the president on tariffs risks reigniting inflation which would be most unfortunate given the progress which has been seen over the past couple of years," Mark Hamrick, Bankrate's senior economic analyst, previously said in a statement to Business Insider.

The Federal Open Market Committee will meet next week to decide whether to change interest rates. Members will likely consider the new consumer price index data and recently published employment figures in their decision-making process. While unemployment has slowly ticked up over the past couple of years, it was still historically low in February, data published Friday showed. Job growth was below expectations in February, and the prime-age labor force participation rate was steady.

Cory Stahle, an economist at the Indeed Hiring Lab, told BI on Friday that the Fed will probably still think the labor market is robust and have time to make rate adjustments. However, job cuts happening in the public sector, tariffs' potential impacts on businesses, and other changes could have an effect.

Stahle said the Fed may feel "like their time is running out given how quick a lot of these changes are happening."

CME FedWatch, which estimates predictions for Fed interest rates based on market activity, showed traders expected a 97% chance the Fed will hold rates steady later this month, unchanged from before the report.

"With a lower-than-expected inflation number (both month-over-month and year-over-year), at least the Fed still has the flexibiilty to step in to support a weaker economy, and that would be good news for markets, which have been through the ringer in the past month and a half," Chris Zaccarelli, chief investment officer for Northlight Asset Management, said.