Traders Await Pivotal February Inflation Data As Stagflation Fears Weigh On Wall Street: What To Expect

Wall Street is on edge ahead of a pivotal inflation report this Wednesday, as traders hope for signs that price pressures are finally cooling after weeks of market turmoil.

The tech-heavy Nasdaq 100 – as tracked by the Invesco QQQ Trust QQQ – has tumbled 13% in just three weeks, with March on track for becoming the worst month since December 2022, while recession fears are mounting amid a sharp downgrade in U.S. growth forecasts.

With the Federal Reserve's next move in question, all eyes are on the latest Consumer Price Index data, slated for release at 8:30 a.m. ET on Wednesday.

February Inflation Preview: What Are Economists Expecting?

The median economist consensus, tracked by TradingEconomics, sees annual headline inflation easing to 2.9% from January's 3% reading, which would snap a four-month streak of accelerating inflation.

On a monthly basis, price growth is expected to slow to 0.3% from 0.5%.

Core inflation, which excludes food and energy, is seen moderating to 3.2% from 3.3%, with the monthly pace cooling to 0.3% from 0.4%.

While a softer CPI print could boost expectations for rate cuts, Bank of America economist Stephen Juneau said that inflation is still running “well above levels consistent with the Fed’s 2% target."

That means the Federal Reserve may not rush to ease monetary policy despite growing economic risks.

Goldman Sachs economist Jessica Rindels expects pockets of inflationary pressure to persist in key categories. "We expect used car prices to increase 0.6%, reflecting an increase in auction prices, and we expect new car prices to increase 0.3%, reflecting a decline in dealer incentives," she said.

Car insurance is another pain point, with a projected 1% jump due to rising premiums. Airfares could also surge 2.5%, while communication services may see a 0.3% uptick due to seasonal distortions.

Despite near-term inflationary pressures, Goldman Sachs sees disinflation ahead, predicting core CPI will fall to 3.2% by December 2025, with core Personal Consumption Expenditures inflation—the Fed's preferred gauge—easing to 2.9%.

However, the firm warned that tariff hikes could offset some of the cooling effects from a rebalancing in auto, housing rental, and labor markets.

Market Sell-Off Intensifies Ahead Of Inflation Data

The stakes for Wednesday's inflation report are high. Markets have been hammered in recent weeks, with investors fleeing risk assets amid fears of slowing economic growth.

The Atlanta Fed's GDPNow model now forecasts a 2.4% contraction for the U.S. economy for the first quarter of 2025, a sharp reversal from its 2.3% growth projection in mid-February.

"Looking into the details, we see that most of that is being driven by imports a lot higher than exports," economist Ayesha Tariq said.

That suggests U.S. businesses may have accelerated imports in anticipation of President Donald Trump's proposed tariff hikes, leading to wider trade imbalances.

The market sell-off in recent weeks reflects deep losses in the Magnificent Seven tech stocks, all of which have entered correction territory.

Six of the seven are down at least 18% from their recent highs, with Tesla Inc. TSLA plunging 53.9% and Nvidia Corp. NVDA sliding 30.1%.

For now, the market downturn may be seen as a long-overdue correction rather than a crisis. "The sell-off looks like an overdue correction which could reset some overvalued stocks and restore some sanity to the market," said David Morrison, senior market analyst at Trade Nation.

Magnificent Seven	Drawdown from peak (as of Mar. 10)
Tesla Inc.	-53.9%
Nvidia Corp.	-30.1%
Alphabet Inc. GOOGL	-19.5%
Amazon.com Inc. AMZN	-19.5%
Meta Platforms Inc. META	-18.9%
Microsoft Corp. MSFT	-18.8%
Apple Inc. AAPL	-12.4%

Will The Fed Cut Rates?

Traders have ramped up bets that the Federal Reserve will step in to cushion the economic slowdown. Market-implied probabilities now suggest an 80% chance of four rate cuts by December 2025.

Fed Chair Jerome Powell struck a dovish tone during last week's congressional testimony, saying the central bank is waiting for more confidence that inflation is "moving sustainably at 2%."

He added, "When we do get that confidence, and we're not far from it, it'll be appropriate to begin to dial back the level of restriction."

However, not all analysts are convinced that the Fed should act aggressively.

"The Fed should be wary of tripping that wire by lowering interest rates too soon," Ed Yardeni said in a note Tuesday.

A cooler CPI reading could spark a relief rally, while a hotter-than-expected report might extend the sell-off and intensify stagflation concerns.

Either way, Wall Street is at a crossroads, and Wednesday's numbers will set the tone for the coming months.

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