Anticipation Builds for Upcoming CPI Report Under Trump’s Administration
The eagerly awaited consumer price index (CPI) report, scheduled for release on Wednesday, will mark the first such announcement during President Donald Trump’s administration. Analysts predict that signs of easing inflation may bolster the likelihood of an interest-rate cut, providing a much-needed boost to investors in risk assets, who have faced significant losses in recent weeks.
According to forecasts from the Bureau of Labor Statistics, the headline inflation rate is expected to decline year-over-year to 2.9%, down from 3%. Additionally, core inflation, which excludes the often volatile categories of food and energy, is projected to drop by 0.1 percentage point to 3.2%. A slowdown in inflation typically raises the prospects for interest-rate cuts, making riskier investments more appealing to investors.
The CPI serves as a vital gauge of the cost of a broad array of goods and services across the U.S. economy, and inflation has been on the rise for four consecutive months. Recently, the S&P 500 index has registered a nearly 10% decline from its all-time high, while Bitcoin (BTC) has seen a substantial drop of around 30%, trading at approximately $80,000.
Both President Trump and Treasury Secretary Scott Bessent have underscored the importance of reducing 10-year Treasury yields to facilitate a decrease in the federal funds rate. So far, this strategy seems to be effective, as the 10-year yield has decreased from 4.8% to 4.2%. Concurrently, the dollar index (DXY) has weakened to below 104, while WTI crude oil prices have stabilized in the mid-$60 range, aligning with the administration’s broader economic objectives.
In a related development, the Truflation Index has dropped to 1.35%, marking its lowest level since September 2020. However, it is noteworthy that both five- and ten-year inflation expectations remain above 2%, indicating that President Trump still faces challenges in managing long-term inflation expectations.
Looking ahead to the Federal Open Market Committee (FOMC) meeting scheduled for March 18-19, Chair Jerome Powell is anticipated to maintain the federal funds rate at a steady 4.25%-4.50%, according to insights from the CME FedWatch Tool. Investors will be keeping a close eye on the forthcoming inflation report, as a cooler-than-expected outcome could prompt the Federal Reserve to contemplate rate cuts. Conversely, a “hot” inflation reading would likely result in prolonged higher rates, further intensifying pressure on risk assets.
