[Reuters Analysis] Cool March CPI may be brief distraction from tariff-led inflation

April 10 (Reuters) - U.S. consumer prices unexpectedly fell in March, but inflation risks are tilted to the upside after President Donald Trump doubled down on tariffs on imported Chinese goods even as he lowered duties on other nations.

The consumer price index dipped 0.1% last month after gaining 0.2% in February, the Labor Department said on Thursday. Year over year, the CPI advanced 2.4% after rising 2.8% in February. Economists polled by Reuters had forecast the CPI edging up 0.1% and climbing 2.6% year-on-year.

Excluding the volatile food and energy components, the CPI gained 0.1% after climbing 0.2% in February.

MARKET REACTION:

STOCKS: U.S. stock index futures EScv1 seesawed in negative territory, last off 1.7%, pointing to a weak open on Wall Street

BONDS: The 10-year U.S. Treasury yield US10YT=TWEB fell then rose to 4.3489%, while the two-year yield US2YT=TWEB fell to 3.856%

FOREX: The dollar index =USD was down 1.2% hardly changed, and the euro EUR= held strong, up 1.45%

COMMENTS:

JAKE DOLLARHIDE, CHIEF EXECUTIVE OFFICER, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA

"The inflation number theoretically is fantastic. The Fed has never been this close to its 2% target. But right now, the market does not know what to pay attention to. There's so much going on.

"What it tells me is people don't know how to or where to be positioned. I'm going to bet cooler minds will prevail. Why did tariffs freak out the market? Tariffs are bad because we thought inflation was going higher. Well, today's numbers prove inflation is going lower. All things being equal, if tariffs are paused and inflation is going lower, it’s green light go if you're an investor.

"All things being equal, this is good for this market, good for the economy and good for the U.S. investor."

MAX WASSERMAN, FOUNDER AND SENIOR PORTFOLIO MANAGER, MIRAMAR CAPITAL, ILLINOIS

"These numbers are meaningless, It's what hasn't been taken into account, i.e the fact of tariffs. The real important one is going be the next reading. It's a non event right now.

"People will focus on if we’re seeing a slowdown in demand either caused by consumers slowing their spending and/or corporations slowing their expenditures because they anticipate a slowdown.

"The big concern is going to be not only the tariffs, but whether we are going be in a stagflationary environment. It's going to be very hard to pinpoint. If you see a print out there that says inflation is still stubborn and growth slowing down, that's going to make people revise their five rate cuts."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

"This is good news. It shows that inflation is receding, and this is good news for the Fed. The fact that on a year-to-year basis headline inflation moved down to 2.4% means it's getting closer to the Fed's target of 2%.”

“It'll just spark a fairly strong bond rally I would expect (10-year Treasury yields) could possibly drop as low as 4.15% within the next couple of days.”

“Bottom line for the markets is that we can expect the Trump reversal rally to extend itself.”

“But we’re seeing China, you know once again saying they’re going to fight to the very end, and let's not forget that the good news of yesterday still keeps China in the forefront, and that means the possibility of a recession is not likely to recede anytime soon.”

“If this (inflation cool-down) continues and if the trade war between China and the U.S. ends within a reasonable time. Then I would say there's a good chance that the Fed may actually cut two or three times this year. Otherwise, I only see one rate cut coming.”

SEAN O’HARA, PRESIDENT, PACER ETF DISTRIBUTORS, PHILADELPHIA

"It's probably mostly energy related. That effects everything ... It's good news for the economy and good news for the consumer. Hopefully, it’s good enough news for the Fed to start to take some action here. They're a little behind the curve in terms of rate cuts."

"I don't think the movements in the market have much to do with the CPI numbers. We just had a historic day where everything ripped to the upside. I'd expect you'd see a little settling down."

"The market has been troubled by three things. One is tariffs, which is obvious. The 90-day pause, if you get all these deals done, was seen as a very positive thing. What was a headwind, at least as of yesterday's turnaround, is maybe not quite a tailwind yet, but it’s not a head wind anymore."

"The other two things that are, you know troubling the market are you know Congress not being able to get their act together and deliver the tax package that will make the current tax rates permanent or at least extend them for a significant period of time. That will certainly help businesses and individuals. Then, the Fed's got to act here."