Trump’s First Inflation Report Due as Risk investors Seek Signs of Cooling

The consumer price index (CPI) report due Wednesday will be the first under President Donald Trump's tenure, with signs of cooling likely to raise the chance of an interest-rate cut and lift the spirits of investors in risk assets, who have been hammered in recent weeks.

The Bureau of Labor Statistics is forecast to say headline inflation declined year-over-year to 2.9% from 3%, while core inflation, which excludes volatile food and energy prices, also lost 0.1 percentage point to 3.2%.

Slower inflation raises the chance of an interest-rate cut, making riskier investments more attractive. CPI, which measures the cost of a basket of goods and services across the U.S. economy, has accelerated for four consecutive months.

In the past few weeks, the S&P 500 has dropped almost 10% from its all-time high and bitcoin BTC$89,274.20 has lost around 30% to around $80,000.

Both Trump and Treasury Secretary Scott Bessent have emphasized the need for lower 10-year Treasury yields to bring down the federal funds rate. So far, this strategy appears to be working, with the 10-year yield falling to 4.2% from 4.8%, the dollar index (DXY) weakening below 104 and WTI crude oil stabilizing in the mid-$60 range — aligning with the administration's economic plans.

Meanwhile, the Truflation Index has hit 1.35%, its lowest level since September 2020. However, five- and 10-year inflation expectations remain above 2%, indicating that Trump still has work to do in managing long-term inflation expectations.

At the Federal Open Market Committee (FOMC) meeting on March 18-19, Chair Jerome Powell is expected to hold the federal funds rate steady at 4.25%-4.50%, according to the CME FedWatch Tool.

Investors will be closely watching the inflation report, as a cooler-than-expected print could prompt the Federal Reserve to consider rate cuts. Conversely, a "hot" inflation reading would likely keep rates higher for longer and put further pressure on risk assets.