Inflation Stays on Script, but Oil Shock Flashes New Warnings — Evening Brief – 03.11.26

U.S. inflation cooled slightly in February, delivering just enough progress to keep the Federal Reserve on pause, but not enough to settle nerves about the path ahead.  

The Consumer Price Index rose 0.3% on the month, up from 0.2% in January and matching consensus estimates. Year over year, headline inflation held at 2.4%, in line with expectations and unchanged from the prior month. Core CPI, which strips out food and energy, increased 0.2% versus 0.3% in January, while the annual core rate stayed at 2.5%, also as forecast. 

Shelter did much of the work, with the index up 0.2% and contributing the largest share of the monthly gain. Food prices rose 0.4%, including a 0.4% increase for food at home and a 0.3% rise for food away from home. Energy climbed 0.6%, but the February data do not yet capture the full impact of the U.S.-Israel-Iran war, which has driven crude above $100 a barrel from roughly $65 before the conflict. 

For the Fed, the report reinforces the case for patience. After cutting rates between September and December, policymakers have held the federal funds target at 3.5% to 3.75% since January and are widely expected to maintain that stance at next week’s meeting.  

Markets still see modest easing ahead, but the timing is in flux as geopolitical risks cloud the inflation outlook. Two-year Treasury yields rose about two basis points to 3.60% after the release, while pricing in derivatives now implies roughly 34 basis points of cuts this year and a first full quarter-point move in September or October. At the long end, the 10-year yield climbed to about 4.18% after the data, then pushed to an intraday high near 4.21% following a soft $39 billion auction.