US inflation data will be released today at 4:30 PM, Amman time, and the markets are awaiting the real reading compared to what is expected and the previous rate. Expectations indicate that annual inflation will continue to slow down for the seventh consecutive month to 6.2%, compared to 6.5% for the previous reading. This would be the lowest reading since October 2021.
The Fed stresses the need for inflation to return to the target levels at 2%, to continue with monetary tightening policy if inflation remain at unacceptable levels. The Fed added that interest rate expectations at its next meeting in March, will depend on the economic data. If the inflation rate is higher than expected, the Fed will raise interest rates more aggressively, but if it is lower than expected, the Fed will continue at a slow pace.
There is a state of fear in the markets from a sudden rise in inflation data, especially after previous jobs data that exceeded expectations, showing that the US economy added 517,000 jobs. Both higher than expectations and the previous reading. Thus, the Fed's efforts to combat inflation are still questionable.
Financial markets are expected to be volatile following the release, with a reminder that the initial market reaction, regardless of the nature of the real reading, may be sharp and volatile at first before returning to stability.
Therefore, it is necessary to remember the golden rule: traders have different ideas and convictions in the way they interpret the information issued, and prices cannot move 100% according to that information. Here are some expected potential scenarios suggested by analysts.
1. A reading higher than the previous reading (6.5%): This could translate as fears of rising inflation again, which will push the Fed to continue at a strict pace with regard to interest rates hikes. This may positively affect the US Dollar and negatively affect stocks and gold.
2. A reading equal to or less than expected (6.2%): This could convince the Fed to continue with a slow rate of interest rates, and thus, may negatively affect the dollar and positively affect stocks and gold.
3. A reading higher than expected, but lower than the previous reading (between 6.2% and 6.5%): This would be considered the most confusing situation for the markets and could lead to volatile fluctuations before prices take a specific direction.