Fears of a stock market crash are aflutter ahead of the all-important March Consumer Price Index (CPI) report, due this Wednesday, April 10.
So, what should you expect from the widely watched inflation gauge this time around?
Well, many forecasters are calling for a hot reading in March. Indeed, economists polled by the Wall Street Journal project that the CPI will climb 0.3% in March. This would put annual inflation at 3.5%, up substantially from February’s 3.2% reading.
Core inflation, which excludes the volatile Food and Energy categories, is also predicted to jump 0.3% in March, which is actually a slight improvement from January and February’s 0.4% readings. This would bring the core rate down to 3.7%, from 3.8%, still a ways away from the Federal Reserve’s long-stated 2% objective.
All in all, this would put the economy at a fairly rapid pace of inflation in March. That, unfortunately, doesn’t bode well for the stock market.
Interestingly, some economists believe the March CPI may be the first “clean” inflation reading of the new year, as seasonal adjustments warp early inflation figures.
“Thus, March is first clean CPI print of 2024,” noted Fundstrat’s Tom Lee. “Or rather, we view the March CPI report as more representative of the actual trend in inflation.”
Stock Market Crash Fears Swell Ahead of Potentially Red-Hot CPI
Should forecasters prove accurate for the upcoming CPI, it could be a troubling indicator for the stock market. Indeed, should inflation come out hot, it would likely further push the Fed towards holding off on cutting interest rates, something Wall Street dreads.
Traders have reacted somewhat emotionally to economic data this year, largely because of the implication the data yields for potential rate cuts. Hot inflation data would send a message that the central bank should hold off lowering interest rates as a means of ensuring prices come back down.
This would likely be the final straw for the Fed after the March jobs report, which came out shockingly strong last week. With the economy otherwise holding strong, the central bank has every incentive to take a more aggressive path towards its disinflation goal — largely by keeping rates high.
Fed Governor Michelle Bowman has even tossed around the idea of the central bank raising rates again this year, even beyond its current 23-year high.
“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” Bowman said last Friday. “Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% over the longer run,” she said.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
