- The highly anticipated U.S. January CPI report comes out on Wednesday morning.
- Headline annual inflation is seen rising 2.9% and core CPI is forecast to increase 3.1%.
- Investors should brace for volatility—and consider hedging portfolios against both inflationary and deflationary shocks.
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All eyes are on Wednesday’s Consumer Price Index (CPI) report for January, due at 8:30AM ET, with major implications for the Federal Reserve’s rate-cut timeline, and equity markets.
The data arrives amid mounting uncertainty over President Donald Trump’s proposed tariffs, which could reignite inflationary pressures and complicate the Fed’s path to monetary easing.
As such, investors should brace for possible market swings after the CPI release as financial markets adjust their expectations for the Fed’s next rate move.
What to Expect
Headline CPI is expected to accelerate 2.9% year-over-year, matching December’s pace. Meanwhile, core CPI, which excludes food and energy prices, is expected to rise 3.1% on an annual basis, down from 3.2% in the previous month.
Source: Investing.com
Signs of moderating inflation would buoy hopes for Fed rate cuts as early as June. However, a hotter-than-expected print could complicate the narrative, particularly as Trump’s tariff threats loom. Investors are increasingly wary that Trump’s proposed tariffs—25% on imports from Mexico and Canada, and 10% on China—could reverse progress on inflation.
Though the Fed might look through one-off price shocks, prolonged trade tensions could force a hawkish recalibration of policy, delaying cuts even if growth slows.
Markets are currently pricing in a roughly 50% chance of a June cut, as per the Investing.com Fed Monitor Tool, down from 73% a month ago. The U.S. central bank paused its rate-cutting cycle last month, insisting it needs “greater confidence” that inflation is sustainably heading toward its 2% target.
Market Implications
Equities have held near their recent record highs, but the S&P 500 remains vulnerable to CPI surprises.
A hot report could spark a sell-off, particularly in rate-sensitive tech and growth stocks, as higher-for-longer rate expectations dent valuations.
Conversely, a soft CPI reading could revive bets on a mid-year pivot and reignite the rally to new records, with tech leading as bond yields retreat. Cyclical sectors, like energy, and industrials, may fare better on tariff-driven inflation hedges. Safe-haven assets will also be in focus.
Gold, traditionally a refuge in times of inflationary uncertainty, could see prices climb above the key $3,000 level for the first time in history if the CPI report indicates persistent price pressures.
Elsewhere, in the bond market, a strong inflation print could push the 10-year yield towards 4.75% (vs. 4.55% pre-CPI). A mild CPI report might reverse this, dragging yields toward 4.20% and reviving demand for rate-sensitive bonds.
Bottom Line
The January CPI report is poised to be a defining moment for market participants. Its outcome will not only shape the Fed’s future policy moves but will also set the tone for broader market sentiment and influence key asset classes like equities, gold, and Treasurys.
Investors should prepare for potential volatility by maintaining a diversified portfolio, keeping an eye on safe-haven assets, and staying nimble as they adjust to the unfolding economic data.
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Disclosure: I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.