Will an Uptick in Inflation Be a Tipping Point for Economic Worries to Take Hold?
Any numbers that start to confirm economic slowing and sticky inflation are likely to produce an intense reaction.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Market indications are lower early Wednesday morning as investors digest the results of China-U.S. trade negotiations and wait for the May CPI report.
The trade negotiations put back in place a framework for a bigger deal and dealt with U.S. concerns about rare earth metals, but there don't appear to be any major breakthroughs. President Trump and Chinese President XI are expected to approve the framework in the next few days, and then the long process of hammering out details will proceed. Meanwhile, an appeals court ruling will allow the Trump tariff to remain in place for months if necessary.
There is a little "sell-the-news" reaction to the trade and tariff news, but CPI, which is due at 8.30 a.m. ET, will be of more interest. It is expected that some of the impact of tariffs will start to be felt and result in an uptick in core CPI.
So far, economists and pundits projecting a dire impact from Trump's trade policies on the economy have been wrong, but they have not given up on their predictions. Any numbers that start to confirm that there is economic slowing and sticky inflation are likely to produce an intense reaction.
Even if CPI does come in as expected with a slight increase, that gives cover to the Federal Reserve to hold off on the interest rate cuts that President Trump wants so badly. The Fed is not going to push for cuts until there is some economic slowing, especially if inflation is starting to trend back up.
Technically, the indexes have been making very steady progress and are hovering just below the highs hit in February. However, it is going to take some very good news to juice momentum sufficiently to produce a breakout to new highs for 2025.
The main driver of market strength has been the high level of skepticism about tariffs. Many experts expected a fall into stagflation, but there are no signs of it right now. An uptick in inflation will give the bears a little ammunition, but it is being offset with continued economic strength, particularly in the AI sector.
While there a lot of folks looking for a market reversal to hit, it will take a very hot CPI report to trigger major concerns. That is not likely to be the case Wednesday. The biggest danger right now is sell-the-news action, but there should be some nearby support and dip buying.
At the time of publictaion, Rev Shark had no positions in any securities mentioned.
