High Stakes Inflation Report Set to Test Market Stability

A key U.S. inflation report next week may affect the stock market's instability, compounded by economic slowdowns and President Trump's tariffs. Concerns include the effects of a hot CPI print and the Federal Reserve's monetary policy. Investors weigh stagflation risks amid trade negotiations and spending bill discussions.

An upcoming U.S. inflation report could add to the existing turmoil in the stock markets, already jittery due to a slowing economy and President Trump's tariffs. The S&P 500 is touching new lows, and the Nasdaq Composite confirms it has been in a correction phase for months.

The Federal Reserve's potential interest rate cuts are seen as a silver lining for stocks, but this could change if the U.S. consumer price index report reveals high inflation. Bryant VanCronkhite of Allspring Global Investments warns that rising inflation expectations could hinder the Fed from easing its monetary policy.

In addition, trade policy uncertainties and a potential government shutdown are fueling investors' anxiety. Volatility is on the rise, evidenced by the Cboe Volatility index. Irene Tunkel of BCA Research notes that market volatility might persist due to the absence of clear economic and trade policies.

(With inputs from agencies.)