Concerns around the US economy remain despite softer-than-expected inflation, James Knightley, Chief International Economist at ING, said. The consumer price index (CPI) in the US rose by 2.8% in February compared to 3% a month earlier. The drop was mainly due to airfares falling by 4%. “Most other components still remain relatively sticky,” he added.

Markets had been expecting a higher inflation number triggering the US Federal Reserve to cut interest rates, which could have eased the recession fears. On March 12, JPMorgan had increased the odds of a US recession this year to 40%.  Last week, the Federal Reserve’s Atlanta branch projected that US economy may shrink 2.4% in the first three months of this year.

However, now, a slower-than-estimated inflation may delay possible interest rate cuts by the US Fed. Knightley expects rate cuts in September and December 2025, and another one in March 2026. The rationale being that the impact of Donald Trump’s tariffs on imports from various countries are yet to show in the inflation data. The bond market reflected a similar fear.

Inflation has been rising since hitting a 3.5-year low of 2.4% in September. US inflation went up last month as prices for groceries, gas, and used cars increased. “The longer the tariffs stay on, the more the risk of recession grows,” says Luke Tilley, chief economist at M&T Bank/Wilmington Trust, told AP, a news agency.

The US budget deficit has now crossed $1 trillion, making up nearly 7% of the country’s GDP. “It just highlights how much work they have got to do if they do want to bring that deficit down,” Knightley said.

You can watch the entire interview with ING’s Knightley here:

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