Is the robust labor market causing inflation to cool? Awaiting CPI data could prompt the Federal Reserve to ease restrictions.
2026-02-13 14:32:24
Investors received some good news this week about the labor market, and Friday may bring more news about inflation.
According to Dow Jones' consensus forecast for January data, the CPI is expected to rise by 2.5% year-on-year. The CPI is a broad indicator that measures the cost of goods and services in the U.S. economy.
If this is ultimately accurate, it would bring widely cited inflation indicators back to May 2025 levels. In April 2025, President Trump implemented his "Liberation Day" tariffs, which many economists believed would drive an upward price spiral.
The overall CPI (i.e., all items) was 2.7% in December, declining since peaking slightly above 3% in September. Excluding food and energy, the core CPI was 2.6% in December. Both indicators are expected to show a 0.3% month-over-month increase in January.
It's worth noting that the CPI has been below Wall Street consensus for the past three months. Therefore, the lower January data may give Federal Reserve policymakers more confidence that they can lower benchmark borrowing rates without risking a resurgence of inflation.
Tom Lee, head of research at Fundstrat Global Advisors, said that an inflation recovery to 2.5% would be in line with pre-pandemic prices (the average level from 2017 to 2019).
"These are 'normal' inflation conditions, even with the lingering effects of tariffs in these outcomes," Lee said in a report. He added that the federal funds rate is currently targeting 3.5%-3.75%, well above pre-pandemic levels, and "the Fed has significant room to cut rates."
As usual, Wall Street economists will scrutinize the details of the data.
Goldman Sachs expects tariffs to contribute 0.07 percentage points to core inflation, with clothing, entertainment, home goods, education, and personal care potentially facing upward pressure. However, Goldman Sachs believes that overall CPI slightly below 2.4% could increase hopes that inflation is slowing.
A strong jobs report released Wednesday showed that nonfarm payrolls increased by 130,000 in January and the unemployment rate fell to 4.3%, prompting a slight pullback in the market. There is speculation that the strong labor market will prevent the Federal Reserve from cutting interest rates.
However, a consensus or interpretation of inflation may alleviate these concerns.
Lee stated, "The Fed's dovish stance is beneficial to the stock market, which is why, based on our 'three-stage market' fundamental assessment, we believe the stock market will perform strongly by the end of the year."
The U.S. Bureau of Labor Statistics will release the inflation report at 21:30 Beijing time on Friday.
According to Dow Jones' consensus forecast for January data, the CPI is expected to rise by 2.5% year-on-year. The CPI is a broad indicator that measures the cost of goods and services in the U.S. economy.
If this is ultimately accurate, it would bring widely cited inflation indicators back to May 2025 levels. In April 2025, President Trump implemented his "Liberation Day" tariffs, which many economists believed would drive an upward price spiral.
The overall CPI (i.e., all items) was 2.7% in December, declining since peaking slightly above 3% in September. Excluding food and energy, the core CPI was 2.6% in December. Both indicators are expected to show a 0.3% month-over-month increase in January.
It's worth noting that the CPI has been below Wall Street consensus for the past three months. Therefore, the lower January data may give Federal Reserve policymakers more confidence that they can lower benchmark borrowing rates without risking a resurgence of inflation.
Tom Lee, head of research at Fundstrat Global Advisors, said that an inflation recovery to 2.5% would be in line with pre-pandemic prices (the average level from 2017 to 2019).
"These are 'normal' inflation conditions, even with the lingering effects of tariffs in these outcomes," Lee said in a report. He added that the federal funds rate is currently targeting 3.5%-3.75%, well above pre-pandemic levels, and "the Fed has significant room to cut rates."
As usual, Wall Street economists will scrutinize the details of the data.
Goldman Sachs expects tariffs to contribute 0.07 percentage points to core inflation, with clothing, entertainment, home goods, education, and personal care potentially facing upward pressure. However, Goldman Sachs believes that overall CPI slightly below 2.4% could increase hopes that inflation is slowing.
A strong jobs report released Wednesday showed that nonfarm payrolls increased by 130,000 in January and the unemployment rate fell to 4.3%, prompting a slight pullback in the market. There is speculation that the strong labor market will prevent the Federal Reserve from cutting interest rates.
However, a consensus or interpretation of inflation may alleviate these concerns.
Lee stated, "The Fed's dovish stance is beneficial to the stock market, which is why, based on our 'three-stage market' fundamental assessment, we believe the stock market will perform strongly by the end of the year."
The U.S. Bureau of Labor Statistics will release the inflation report at 21:30 Beijing time on Friday.
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