Inflation Report: Will Trump’s First Attempt Cool the Market or Just Heat Things Up? 😅

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What to know:

  • It is anticipated that the headline year-over-year inflation shall descend to a modest 2.9% from the lofty 3%.
  • Core inflation, that fickle creature, is also expected to retreat by a mere 0.1 percentage point to 3.2%.
  • Should the CPI report prove to be more fervent than expected, it may compel interest rates to linger at their elevated heights, rendering risky assets rather less appealing.

On the morrow, the consumer price index (CPI) report shall make its grand debut under the auspices of President Donald Trump. It is with bated breath that we await signs of cooling, which might just elevate the prospects of an interest-rate cut, thereby lifting the spirits of beleaguered investors in risk assets, who have recently endured quite the battering.

The Bureau of Labor Statistics is poised to declare that headline inflation has indeed declined year-over-year to 2.9% from the rather alarming 3%. Core inflation, which so gallantly excludes the capricious prices of food and energy, is also expected to lose a trifling 0.1 percentage point to 3.2%.

As inflation slows, the prospect of an interest-rate cut becomes ever more tantalizing, making those riskier investments appear rather more attractive. The CPI, that measure of the cost of a veritable basket of goods and services across our fair economy, has been on a rather accelerated path for four consecutive months. How delightful! 🙄

In recent weeks, the S&P 500 has plummeted nearly 10% from its all-time high, while bitcoin (BTC) has taken a nosedive of approximately 30%, now languishing around $80,000. Oh, the drama!

Both Trump and Treasury Secretary Scott Bessent have been most vocal about the necessity for lower 10-year Treasury yields to facilitate a reduction in the federal funds rate. Thus far, this strategy appears to be bearing fruit, with the 10-year yield descending to 4.2% from 4.8%, the dollar index (DXY) weakening below 104, and WTI crude oil stabilizing in the mid-$60 range — all in accordance with the administration’s economic aspirations.

Meanwhile, the Truflation Index has plummeted to 1.35%, its lowest point since September 2020. However, the five- and ten-year inflation expectations remain stubbornly above 2%, suggesting that our dear Trump still has considerable work ahead in managing the long-term inflation expectations. How tiresome! 😏

At the forthcoming Federal Open Market Committee (FOMC) meeting on March 18-19, Chair Jerome Powell is expected to maintain the federal funds rate at a steady 4.25%-4.50%, as per the esteemed CME FedWatch Tool.

Investors shall be watching the inflation report with keen interest, for a cooler-than-expected print could prompt the Federal Reserve to contemplate rate cuts. Conversely, a “hot” inflation reading would likely keep rates elevated for an extended period, thereby exerting further pressure on those risk assets. What a delightful conundrum! 😂

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2025-03-11 13:15