As recent U.S. economic data has disappointed, one silver lining for stocks has been markets factoring in more interest rate cuts by the Federal Reserve this year to account for potential growth weakening.
But Wednesday's U.S. consumer price index report could scuttle those expectations if it confirms that inflation is still simmering at levels that force the Fed to keep monetary policy tighter.
"A hot CPI print will likely scare the market," said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. "The market still wants the Fed to come to the rescue... Until inflation and inflation expectations come down, the Fed is handcuffed."
Investors are mindful of last month's hotter-than-expected CPI data that saw inflation rise 0.5% in January, its biggest monthly gain since August 2023.