U.S. Inflation Data Could Impact Stock Market’s Future

NEW YORK, Feb. 28, 2025 — Financial markets are currently in a state of concern as U.S. economic growth shows signs of slowing down, raising questions about the stability of stock markets. Recent figures from the S&P Global purchasing managers index (PMI) revealed that economic expansion has dropped to its lowest point in 17 months, with the vital service sector reporting its first contraction in over two years.

Analysts suggest this economic slowdown reflects broader issues, as other major economies such as the Eurozone and China continue to struggle. This trend has led to a dovish shift in expectations regarding Federal Reserve monetary policy. Just last week, futures for the benchmark Fed Funds interest rate anticipated a cut of 55 basis points by the end of 2026; that expectation has now increased to 83 basis points.

The impending release of the personal consumption expenditures (PCE) inflation measure, the Federal Reserve’s preferred indicator of inflation, is capturing attention as investors speculate on its potential implications. The PCE is expected to show a slight decline to 2.5% year-on-year for January, an improvement from December’s figure of 2.6%. Additionally, the core PCE, excluding food and energy prices, is anticipated to drop to 2.6%, marking the lowest level since June 2024.

While these figures may appear encouraging to traders hoping for swift Federal Reserve intervention, the market has largely factored in these expectations. The PCE report typically does not deviate significantly from forecasts since it follows consumer price index (CPI) and producer price index (PPI) data, which already inform predictions.

Ilya Spivak, head of global macro at tastylive, noted the cautious outlook for stock markets, stating, “If the PCE report closely aligns with median expectations, it might not provide any new impetus for markets, which have been under pressure lately.”

The financial industry will closely monitor the upcoming PCE results, as they could influence further actions by the Federal Reserve and indicate the potential for market recovery. Financial analysts stress that current market pressures highlight the need for careful navigation amidst fluctuating economic indicators.