The US CPI data for March will be closely watched by the market and the US Federal Reserve. Any significant fall in US inflation will pave the way for the US Fed to cut rates, while a negative surprise could delay the rate cut process. The Bureau of Labor Statistics will release US inflation figures for March 2025 on Thursday, April 10.
Linh Tran, Market Analyst at XS.com says, “The March CPI report, scheduled for release today, will be a key short-term catalyst for market sentiment. If inflation comes in hotter than expected, it will further cement the case for prolonged high interest rates from the Fed, placing additional pressure on the Dow and broader equity markets. Conversely, if CPI shows a clear cooling in inflation, it could provide a short-term rebound opportunity for stocks.”
Things are heating up between the US Federal Reserve and the President of the United States. Powell has frequently stated that no rate cuts will take place unless data reveals otherwise. However, Trump has been vocal in asking Powell to cut interest rates. On the contrary, in a recent public speech, Powell expressed concern about increasing inflation following the full implementation of Trump tariffs. The wait could be prolonged even if the March US inflation numbers are satisfactory.
The US-China trade war has begun. President Trump raised tariffs on Chinese imports to 125%, effective immediately, just hours after China increased duties on US goods to 84%.
President Trump has paused all reciprocal tariffs for three months, except for China, a significant departure from his previous stance on maintaining historically high tariffs. All countries that were previously subjected to reciprocal tariff rates on Wednesday will return to the universal 10% rate.
As a result, US stock futures edged higher on Thursday after the major averages posted a historic rally as President Donald Trump announced a 90-day pause on many of his new tariffs.
In regular trading on Wednesday, the Dow and S&P 500 jumped 7.87% and 9.52%, respectively, for their biggest one-day gains in five years. The Nasdaq Composite also surged 12.16% for its best single-day performance since 2001.
Another implication of the tariff pause is that the Fed may cut interest rates. A delay in tariff implementation will not result in the higher inflation that Powell expects. A rate cut in May, therefore, may become a reality.
The US CPI showed a downward trend in February. After increasing 3% during the 12 months ended in January, inflation rose 2.8%. On a monthly basis, US monthly inflation increased by 0.2 percent after increasing by 0.5 percent in January.
Core consumer prices in the United States, which exclude items linked to food and energy, rose by 0.2% from the previous month in February of 2025, from the 10-month high of 0.4% in January, below market expectations of a 0.3% increase.
US CPI March Expectations
The annual inflation rate in the US is expected to have eased for a second consecutive month to 2.6% in March 2025, its lowest level since October, down from 2.8% in February, driven in part by a decline in energy prices.
However, underlying inflationary pressures likely persisted in categories such as food and core goods. On a monthly basis, the CPI is projected to rise just 0.1%, the smallest increase in eight months, following a 0.2% gain in February.
Meanwhile, annual core inflation, which excludes volatile food and energy components, is expected to slow to 3.0%, the lowest reading since April 2021, from 3.1% the previous month. In contrast, monthly core CPI is forecast to tick up to 0.3% from 0.2%.
Markets will also be watching closely for any early signs of inflationary impact from tariffs already in place since February, including a 10% levy on Chinese imports and increased duties on global steel and aluminum.
There is no FOMC meeting in April, so a lot of market action will revolve around tariffs and earnings results. Any expectation of a rate cut in the FOMC meeting on May 6-7 is a remote probability, unless the economy shows signs of cracks; however, a rate cut in June 17-18 FOMC meeting looks likely. The summary of economic projections will also be released in the June FOMC meeting.
Meanwhile, markets are seeing highly volatile intraday sessions, driven mostly by news and events related to the tariff war.