Market participants are closely watching the release of the U.S. Bureau of Labor Statistics' January Consumer Price Index (CPI) report, scheduled for 21:30 Beijing Time on Friday. This key data point is seen as potentially influential for the Federal Reserve's interest rate path this year. According to the Dow Jones consensus survey, economists forecast that the yearly increase for the headline CPI in January will slow to 2.5%, down from 2.7% in December. If the data matches expectations, this closely-watched inflation gauge would fall to its lowest level since May of last year—the month following the implementation of the "Liberation Day" tariff policies by the prior administration, a move many economists at the time warned could accelerate price increases. On a monthly basis, both the headline CPI and the core CPI, which excludes food and energy, are expected to rise by 0.3%, matching the previous month's increase. Notably, the CPI has come in below Wall Street expectations for three consecutive months. A continued moderate reading for January would provide Federal Reserve policymakers greater confidence to lower the benchmark borrowing rate while avoiding a resurgence of inflation.

Prediction markets are indicating a nearly 50% probability that the monthly increase will be only 0.2%. Despite the consensus pointing to a 0.3% monthly rise, the prediction market platform Kalshi shows a more cautious betting trend. Traders currently assign a probability of approximately 45% to 47% to a mere 0.2% monthly increase in January's CPI. The probability distribution suggests the market is almost certain the CPI will show a positive monthly increase—data indicates a 94% probability of a positive monthly change and a 78% probability it exceeds 0.1%. However, the probability assigned to a 0.3% increase is only about 14%, while the likelihood of a 0.4% or higher reading is less than 5%. This distribution reflects the market's fine-tuning of positions between "inflation holding steady" and "slight cooling."

Tom Lee, Head of Research at Fundstrat Global Advisors, stated in a recent report that a headline CPI level of 2.5% has returned to pre-pandemic norms, roughly equivalent to the average seen from 2017 to 2019. "Even with residual tariff effects in the data, this represents a 'normal' inflation environment," Lee said. He also emphasized that the current federal funds rate target range of 3.5%-3.75% is significantly higher than pre-pandemic levels, suggesting the Fed has ample room to cut rates. Goldman Sachs estimates that tariffs contributed about 0.07 percentage points to the core CPI in January, with pressure concentrated mainly in apparel, recreation, household goods, education, and personal care categories. However, the firm also believes the headline CPI could come in slightly below consensus, forecasting a reading of just 2.4%. If realized, this would further strengthen expectations for moderating inflation.

The nonfarm payrolls report released earlier this week showed 130,000 jobs added in January, with the unemployment rate falling to 4.3%, initially sparking concerns that labor market overheating might restrain the Fed from cutting rates. However, analysis suggests that as long as inflation data does not show an unexpected uptick, labor market resilience alone is unlikely to reverse expectations for a policy shift. Lee believes a "dovish Fed is supportive for equities," and within his firm's "three-phase market" baseline scenario, U.S. stocks are expected to finish the year strongly.