Trump's first inflation report expected as risk investors look for signs of slowing growth
Slowing inflation could increase the likelihood of interest rate cuts, which in turn could fuel growth in riskier assets such as cryptocurrencies.
James Van Straten | Edited by Sheldon Rebeck on March 11, 2025, 10:07 UTC
Key points:
- Overall annual inflation is expected to fall from 3% to 2.9%.
- Similarly, core inflation is likely to decline by 0.1 percentage point to 3.2%.
- A better-than-expected CPI report could cause interest rates to stay high longer, making risky assets less attractive.
Wednesday's consumer price index (CPI) report will be the first of Donald Trump's presidency, and signs of a slowdown could boost the chances of an interest rate cut, boosting sentiment among risk investors who have suffered losses in recent weeks.
The Bureau of Labor Statistics projects that year-over-year headline inflation will decline to 2.9% from 3%, while core inflation, which excludes food and energy prices, will also fall 0.1 percentage point to 3.2%.
Slowing inflation raises the prospect of rate cuts, making riskier investments more tempting. The CPI, which tracks the cost of a basket of goods and services in the U.S. economy, has been rising for four straight months.
In recent weeks, the S&P 500 has fallen nearly 10% from its all-time high, and Bitcoin (BTC) has lost about 30%, falling to around $80,000.
Both Trump and Treasury Secretary Scott Bessent have emphasized the need to lower 10-year Treasury yields to lower the federal funds rate. So far, that strategy appears to be working: the 10-year yield has fallen from 4.8% to 4.2%, the dollar index (DXY) has fallen below 104, and the price of WTI crude oil has stabilized around $60, in line with the administration’s economic plans.
Meanwhile, the inflation index reached 1.35%, the lowest level since September 2020. However, five- and ten-year inflation expectations remain above 2%, indicating that Trump still has much to do to manage long-term inflation expectations.
At the Federal Open Market Committee (FOMC) meeting on March 18-19, Chairman Jerome Powell is expected to keep the federal funds rate at 4.25%-4.50%, according to the CME FedWatch Tool.
Investors will be watching the inflation report cautiously, as a lower-than-expected result could prompt the Federal Reserve to consider cutting rates. In contrast, a hot inflation figure is likely to keep rates higher for longer, putting additional pressure on risk assets.
