Against the backdrop of panic over recession/stagflation triggered by Trump and the severe impact on U.S. stocks, the U.S. CPI inflation data to be released tonight has become the focus of attention, with Wall Street hoping to further clarify whether recent market concerns are justified.
The U.S. Bureau of Labor Statistics will release the February CPI report on Wednesday evening at 20:30. Wall Street generally expects that inflation in February will cool slightly compared to the &#34;hot&#34; January:
<blockquote>
The month-on-month increase in February CPI is expected to fall from 0.5% in January to 0.3%, with a year-on-year increase of 2.9%, slightly lower than the previous value of 3%.
Core CPI is expected to decrease by 0.1 percentage points month-on-month and year-on-year, to 0.3% and 3.2%, respectively.
</blockquote>
Nevertheless, the recent rise in manufacturing and services price indices, along with uncertainty in tariff policies, still casts a shadow over the inflation outlook. The response of U.S. stocks to Trump's tariff policies over the past two weeks indicates that the market is pricing in a recession/stagflation scenario for the U.S. economy.
Analysts believe that if the February CPI data exceeds expectations, it will reinforce stagflation expectations, further compressing the Federal Reserve's room for interest rate cuts and exacerbating stock sell-offs. XTB research director Kathleen Brooks stated, if the CPI performs flat or mild, expectations for Fed rate cuts may rise, which could &#34;to some extent&#34; boost market sentiment. However, she believes that U.S. stocks can only fully recover if Trump &#34;retracts&#34; some of the most destructive economic policies.
<h2>February CPI May See Easing, Inflation Cooling</h2>
Goldman Sachs expects the month-on-month increase in core CPI for February to be 0.29%, with a year-on-year growth rate of 3.21%, which is basically in line with market expectations. The bank specifically pointed out that used car prices, auto insurance, and seasonal factors will be key drivers of the CPI slowdown in that month.
<blockquote>
Automobiles: Used car prices are expected to rise 0.6% month-on-month, significantly slowing from 2.2% in January, reflecting a rebound in auction prices; new car prices are expected to rise 0.3%, mainly due to reduced promotional efforts by dealers.
Auto Insurance: Insurance prices are expected to rise 1.0%, lower than 2.0% in January, but the pressure for premium increases still exists, mainly due to rising car prices, repair costs, and medical and litigation expenses.
Transportation and Communication: Seasonal factors will push up communication prices (+0.3%) and airfare prices (+2.5%), the latter particularly supported by Goldman Sachs' online data.
</blockquote>
In addition, housing costs remain an important component of the CPI. Goldman Sachs expects that housing-related components will slow slightly in February, with Owners' Equivalent Rent (OER) rising 0.29% month-on-month (0.31% in January) and rent rising 0.27% month-on-month (0.35% in January). Additionally, hotel prices are expected to fall 0.5% month-on-month, partially offsetting the 1.4% increase in January
<h2>Tariff Policy Full of Uncertainty, Inflation Slowdown Hard to Change Fed's Wait-and-See Attitude</h2>
The slowdown in February's CPI may bring a sigh of relief, but the biggest question now is where inflation will head in the future. Trump's tariff measures have raised market concerns about rising inflation and slowing economic growth. Federal Reserve officials have traditionally focused more on the inflation aspect of their dual mandate of price stability and full employment, and prolonged high prices may keep the Fed in a wait-and-see mode for a longer time.
The U.S. February ISM Manufacturing Prices Paid Index soared from 54.9 to 62.4, while the Services Prices Index rose from 60.4 to 62.6, with surveyed companies generally indicating that tariffs have pushed up product prices.
The latest Federal Reserve Beige Book also pointed out that prices have generally risen moderately across regions, with some companies raising prices in advance due to tariff uncertainties. New York Fed President Williams previously warned that tariffs could have some impact on inflation and suggested closely monitoring inflation expectation indicators.
Considering the above factors, the Fed is highly likely to maintain a wait-and-see attitude at its upcoming meeting (March 18-19). The CME FedWatch tool shows that the probability of a rate cut next week is only 3%, while the likelihood of keeping rates unchanged is as high as 97%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/775bfe4f-6e7b-4a66-87ea-0f1937f487ca.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/775bfe4f-6e7b-4a66-87ea-0f1937f487ca.png"/>
Fed Chairman Powell stated last week that the current U.S. economic situation remains good, with a robust and balanced labor market, and the Fed does not need to rush to adjust policy rates. The uncertainty brought about by Trump's policy changes remains high, and the Fed will patiently wait for the situation to become clearer, as the cost of maintaining caution is very, very low.
Despite Powell's confidence in the U.S. economy, the Atlanta Fed's GDP tracking data indicates that first-quarter economic growth may fall into negative territory. Trump's remarks last week further ignited recession fears, increasing Wall Street's expectations for Fed rate cuts.
Currently, the market has priced in three rate cuts of 25 basis points each within the year, which is more dovish than the two cuts priced in a week ago. However, if inflation does not decline as expected, the Fed's room for rate cuts will be further limited.
<h2>What Kind of Inflation Report Do U.S. Stocks Need Tonight?</h2>
As the market narrative shifts towards economic recession/stagflation, tonight's CPI report may have a more significant impact on U.S. stocks and even global stock markets. Goldman Sachs trader Lee Coppersmith pointed out that the implied volatility of the S&amp;P 500 index has risen from 1.1% in January to 1.7%.
Goldman's market scenario matrix shows:
<blockquote>
When the core CPI month-on-month increase is less than 0.20%, the S&amp;P 500 rises by 2.50%.
When the increase is between 0.21% and 0.25%, the S&amp;P 500 rises by 2.00%.
When the increase is between 0.26% and 0.30%, the S&amp;P 500 rises or falls by 1.00%.
When the increase is between 0.31% and 0.35%, the S&amp;P 500 falls by 1.50%.
When the increase is between 0.36% and 0.40%, the S&amp;P 500 falls by 2.00%.
When the increase is greater than 0.40%, the S&amp;P 500 falls by 3.00%.
</blockquote>
JP Morgan's assumptions are similar:
<blockquote>
Core CPI month-on-month increase greater than 0.33%: inflation accelerates, and the S&amp;P 500 may fall by 1.5%-2.5%.
Increase between 0.28%-0.32%: supports the stagflation narrative, and the S&amp;P 500 may fall by 1%-1.5%.
Increase between 0.24%-0.28%: in line with expectations, the S&amp;P 500's fluctuation range is -0.5% to +1%.
Increase between 0.20%-0.24%: below expectations, the S&amp;P 500 may rise by 0.5%-1.5%.
Increase below 0.19%: significantly below expectations, the S&amp;P 500 may rise by 1.25%-2%.
</blockquote>
Andrew Tyler from JP Morgan's market intelligence department wrote in a report, consistent with the recent bearish reversal, regarding this CPI data, &#34;we believe the risk/reward for U.S. stocks is skewed to the downside.&#34;
Regarding market reactions, Barclays' view seems more pessimistic. The bank's Chief Market Strategist for Private Banking, Julien Lafargue, stated:
<blockquote>
This seems to be a potential lose-lose situation. Data above expectations may intensify stagflation rhetoric, while data below expectations may deepen concerns about an economic recession.
</blockquote>
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Tonight, the U.S. CPI inflation data will be released, and Wall Street is paying attention to its impact on the market. It is expected that the month-on-month increase in February's CPI will drop from 0.5% in January to 0.3%, with a year-on-year increase of 2.9%. Core CPI is also expected to decline slightly. Analysts believe that if the CPI is higher than expected, it will intensify stagflation expectations, compressing the Federal Reserve's room for interest rate cuts, leading to a sell-off in U.S. stocks. Goldman Sachs expects that used car and auto insurance prices will be key factors in the CPI slowdown

- The upcoming U.S. CPI report is highly anticipated as it may clarify recent market concerns regarding inflation and recession fears linked to Trump's policies.  
- Analysts expect February's CPI to show a slight cooling, with a month-on-month increase of 0.3% and a year-on-year rise of 2.9%, which could influence Federal Reserve interest rate decisions.  
- Market reactions to the CPI data could significantly impact the S&P 500, with varying predictions based on the inflation figures, indicating a cautious outlook amid ongoing economic uncertainties.

Tonight's heavyweight CPI, "slapping" the U.S. stagflation theory?