U.S. Inflation Report Due Today: A Key Market Catalyst?

This week’s economic calendar is dominated by the highly anticipated Consumer Price Index (CPI) report for February, offering fresh insights into the trajectory of U.S. inflation. Scheduled for release today, this key indicator could set the stage for the next major market move.

Inflation Trends Under Trump’s New Term

February’s CPI report marks the first full month of President Donald Trump’s second administration since his return to the White House in late January. Notably, prices surged at the fastest rate since August 2023 during the opening month of 2025.

Economists forecast a slight cooling in inflation, with the headline CPI expected to dip to 2.9% year-over-year, down from 3.0% in January. On a monthly basis, CPI is projected to ease to 0.3% from 0.5% in the previous month.

Excluding volatile components such as food and fuel, the core CPI—a key gauge for policymakers—is expected to register at 3.2% annually and 0.3% month-over-month, compared to 3.3% and 0.4% in January.

Market Reactions and Fed Policy Implications

Wells Fargo analysts suggest that the expected moderation in core inflation is partly due to a reversal in categories that experienced sharp price hikes in January, including prescription drugs, used cars, motor vehicle insurance, and recreation services. However, they also warn that tariff-related pricing pressures are already influencing inflation trends, which could keep overall price increases elevated.

This CPI report is one of the last key data points the Federal Reserve will review before its next monetary policy meeting on March 18-19. In its January meeting, the Fed put rate cuts on hold, adopting a cautious stance amid uncertainty regarding the inflationary effects of Trump’s trade policies.

Inflation vs. Growth: The Fed’s Balancing Act

The prospect of higher tariffs on U.S. trading partners—a key component of Trump’s economic strategy—has raised concerns about inflationary pressures and slower economic growth. Goldman Sachs recently revised its U.S. growth forecast downward to 1.7% while increasing its inflation outlook, reflecting these concerns.

A scenario where economic growth weakens while inflation remains stubbornly high—often termed stagflation—could pose a major challenge for Fed officials. They may be forced to choose between supporting the labor market or curbing inflation.

What’s Next for Interest Rates?

Despite market speculation about rate cuts, Fed funds futures suggest that the central bank may implement three quarter-point cuts by December, according to LSEG data cited by Reuters. However, at its upcoming March meeting, the Fed is expected to keep rates steady within the 4.25% to 4.5% range.

On Friday, Fed Chair Jerome Powell struck a cautiously optimistic tone, stating that the U.S. economy remains strong, pointing to steady job growth and a gradual decline in inflation. Since September, an average of 191,000 jobs per month have been added, reinforcing confidence in the labor market.

Conclusion: What to Watch For

As markets digest today’s CPI report, investors will be closely watching for signals on whether inflation is cooling fast enough to justify rate cuts or if persistent price pressures will force the Fed to maintain its wait-and-see approach. With economic policy shifts under Trump’s new term, the balance between inflation control and growth stimulation remains a critical issue for the markets and the economy.

(Sources: investing.com, reuters.com)