CPI Report May Offer Clarity, but S&P 500 Index Rebound Remains Unlikely

Inflation Cooling Slightly, But Key Price Pressures Persist

The February CPI is projected to rise 0.3% month-over-month, bringing the annual headline inflation rate down to 2.9% from January’s 3.0%. Core CPI, which excludes food and energy, is expected to come in at 3.2%, down from 3.3% the previous month. While these declines indicate gradual disinflation, they are unlikely to be enough to shift the Fed’s cautious stance on interest rates.

Several factors are keeping inflation elevated. Housing and rent costs remain stubbornly high, while supply chain constraints in sectors like air travel and auto insurance are sustaining price pressures. Additionally, President Donald Trump’s new tariffs on imports from Canada, Mexico, and China have added to inflation risks, particularly in consumer goods such as household furnishings and electronics.

Fed Stays Cautious as Inflation Remains Stubborn

The Fed is likely to remain on hold at its upcoming meeting, with officials waiting for clearer signs of inflation easing before considering rate cuts. While markets have priced in potential cuts later this year, a hotter-than-expected CPI print could delay those expectations further. Conversely, a softer inflation reading may provide some relief to equities, particularly in tech and growth stocks, but a significant rally appears unlikely given ongoing macroeconomic uncertainty.

Wall Street Treads Carefully as Stagflation Fears Linger

Stock markets have struggled in recent sessions, with the Dow falling 1.14% and the S&P 500 down 0.76% ahead of the CPI release. Investors are wary of stagflation risks—a scenario of high inflation and slowing growth—especially as Trump’s tariff policies add uncertainty. While a cooler CPI report could ease some concerns, analysts suggest that a full market recovery may require a shift in trade policy rather than just lower inflation prints.

Traders Brace for Limited Market Moves After CPI Release

With inflation still above target and economic uncertainty persisting, traders should not expect today’s CPI report to trigger a major market turnaround. The Fed is likely to maintain a wait-and-see approach, and any relief rally in equities may be short-lived if broader inflationary pressures remain in place.

More Information in our Economic Calendar.