Fed’s Data Dependence Fails When the Data Isn’t Dependable

The Federal Reserve has been adamant for months that it would allow the The Data™ to guide its path to interest-rate cuts. But a second straight month of noisy consumer price statistics is making this data-dependence mantra feel increasingly risky.

A report Tuesday showed that the core consumer price index, which excludes food and energy, rose 0.4% in February from a month earlier, matching a hot January print and exceeding economists’ estimates once again. This means the Fed heads into its March rate decision with three-month annualized core inflation back at 4.2%, the highest since May 2023. It was already a foregone conclusion that the Fed would hold rates steady at 5.25%-5.5% this month. But if it remains as data dependent as it claims, it could be stuck on hold for months as it waits for a series of more encouraging reports.