The new view at the inflation rate will test the US stock market in the coming week, because investors are worried that President Donald Trump’s tariff plan is endangering Wall Street’s expectations for this year’s interest rate cutting.
Benchmark S&P 500 SPX remains around 1% below the level of high record, even when shares were flogged this week by headlines on Trump’s plan to impose tariffs on the largest US trading partners.
The tariff is widely seen as inflation, making it difficult for a federal reserve. The central bank stopped the tariff cutting cycle last month because it was waiting for the data to give a sign of all to continue to ease monetary policy.
The monthly consumer price index becomes on Wednesday offering the latest reading of inflation trends, concerns of the main investor. A survey of more than 4,000 traders issued this week shows that inflation and tariffs are the expected factors that have the biggest influence on the market this year.
“Inflation is truly wildcard for 2025 in terms of how it will have an impact on the interest rate environment,” said Charlie Ripley, a senior investment strategy for Allianz Investment Management. “In terms of we have higher inflation, it really reduces the opportunity for Fed to continue to cut the level, and clearly the market is not like that.”
The January report is expected to show an increase of 0.3% in CPI every month, according to Reuters’s poll.
The economist surveyed by Reuters expects the consumer price index to speed up 0.3% in January from the previous month
Thomson Reutersinflation- Hot or not?
Some Wall Street analysts warn that January traditionally is a more challenging period to estimate CPI due to seasonal factors, increasing the potential of market volatility when data is released.
The inflation rate has been moderated from the highest 40 years achieved in 2022, allowing the Fed to cut the interest rates last year, but has not subsided to the annual target of 2% of the central bank.
“We certainly do not want to see (CPI) heat up again,” said Art Hogan, head of market strategy in B. Riley Wealth. “That will cause concerns that the Fed Fund tariff will be a longer place than we estimate now.”
Market is a price determination of more than 80% that The Fed continues to maintain a stable interest rate at the next meeting in March, while around two cuts are expected at the end of the year, according to LSEG data.
But some investors withdrew expectations for further easing this year. Economist Morgan Stanley this week said they are now only projecting one of this year’s slaughter, in June, as opposed to two previously, said in the note that, “The road for monetary policy in 2025 remains very uncertain.”
The Morgan Stanley team pointed to the uncertainty of the tariff to increase obstacles for interest rates. This week’s investor wrestled with a developing tariff background, with Trump forced and then delayed the one -month import tariff from Canada and Mexico, while carrying out 10% assignments in China.
Following the initial tariff news on Monday, the CBOE Vix volatility index jumped to the highest one week 20.42 but since then subsided to around 15.
“At the beginning of the second Trump administration, the threat of tariffs has revived market volatility,” Lawrence Gillum, head of a fixed income strategy at the financial LPL, said in a written comment on Thursday.
The company’s revenue report will also be the focus of the next week, with results that are due from Coca-Cola Ko, Cisco CSCO and McDonald’s MCD.
With more than half of the reported S&P 500, the fourth quarter revenue was on the path that had risen 12.7% from the previous year, up from the estimated growth of 9.6% in early January, according to LSEG Ibes.
The overall income season has become a positive factor for stocks despite the uncertainty around the tariff, said Anthony Saglimbene, head of market strategy in America Financial.
“Comments from many different industries have been solid,” said Saglimbene. “Driver of demand remains intact.”
Source: Reuters
