What to Expect from Key US Economic Data❓

At 2:30 PM, investors will receive the latest inflation data from the US, which, along with the NFP and PCE reports, are the most critical components influencing Federal Reserve decisions regarding interest rates. The importance of this data makes markets eagerly await the report details, which could shape sentiment on Wall Street and the Forex market in the coming days. So, what can we expect from today’s CPI data?

Key Information Before CPI:

• Headline CPI likely rose to 0.3% m/m in January (vs. 0.4% previously), and core CPI likely increased to 0.3% m/m (vs. 0.2% previously).
• Year-over-year, this would mean the headline CPI remains at 2.9%, while the core CPI falls to 3.1% (from 3.2% previously).
• The January core CPI may show an increase due to seasonality, as companies typically adjust prices at the beginning of the year.
• Inflation data from the second half of 2024 may be revised downward, suggesting that disinflation was stronger than previously thought, potentially reinforcing the Fed's belief that it is approaching its 2% inflation target.

Source: XTB Research

Rising Inflation Expectations

Friday’s report from the University of Michigan showed a significant jump in inflation expectations. US consumers now expect much higher price increases than last month, anticipating 4.3% inflation over the next year (previously 3.2%). A potential source of this spike in expectations is primarily Donald Trump’s tariff policy, which could tighten the goods market in the US in the short and medium term.

Source: XTB Research

No Risk from the Labor Market?

While Jerome Powell clearly emphasized in his speech yesterday that the labor market is not a source of current inflation concerns, US wages (one of the main components of inflation) have shown a gradual increase over the past few months. Wages in January rose more than expected (from 3/9% to 4.1%), but the impact of this data is partly softened by the overall upward revision of the last 2024 NFP report.

Source: XTB Research

Fed's Perspective

A seasonally higher reading should not affect the Federal Reserve’s “not in hurry” stance. The inflation uptick between late 2024 and early 2025 was already forecasted at the start of Q4 2024, both in the US and EU. Therefore, the Fed will focus primarily on the overall trend in core inflation, with additional adjustment, should the year-end data be revised down, signaling strogner transmision of monetary policy.

Money markets are currently pricing in the first rate cut in September 2025. A stronger-than-expected drop in core inflation could shift expectations closer to mid-year. However, the anticipated effects of tariff policies can delay such scenario. Source: Bloomberg Finance L.P.

Summary:

• Cars and rents will likely continue to exert downward pressure on CPI in the first half of 2025, supporting the broader disinflation trend.
• The Fed is expected to ignore temporary shocks, such as rising food prices, focusing instead on core inflation trends.
• Revised data indicating stronger disinflation could reinforce the Fed's resolve to keep interest rates unchanged in the short term before cutting them further later.
• Conversely, if inflation readings are higher, the Fed might find a reason to delay easing even more.
• This scenario might be unfavorable for Wall Street, which performs better in an environment of easy capital access.

The US100 is experiencing slight changes today before the CPI data release. However, in the long term, the index maintains a strong upward trend, technically supported by exponential moving averages (50-day, 100-day, and 200-day EMA). These zones remain key support points for this instrument.

Source: xStation5