To The Moon

All eyes are on today’s Consumer Price Index (CPI) release. Economists expect a 0.3% increase in April, a rebound from March’s surprise dip into negative territory. But beyond the headline number, this CPI report is carrying unusual weight: it could be an early signal of how trade policy is bleeding into consumer prices—and ultimately, how the Federal Reserve might respond.

While April's print may not reflect the full brunt of the tariffs yet, it could hint at what’s coming. The impact of tariffs on inflation tends to show up over a three- to six-month lag. If inflation accelerates more than expected, it may force the Fed to reconsider its expected timeline for rate cuts, which markets have been heavily betting on this year.

Why This CPI Print Matters More Than Usual?

Under normal conditions, CPI is one of many economic indicators the Fed watches. But in the current climate—with trade uncertainty and elevated geopolitical risk—every inflation reading is under the microscope.

Here’s what makes this report pivotal:

• Trade policy is now directly influencing consumer costs. Tariffs act like a tax on imports, and businesses often pass that cost to consumers.

• The Fed is stuck between inflation and stagnation. If inflation starts rising due to tariffs (which are supply-side in nature), but economic growth slows at the same time, the Fed could be looking at a stagflation-lite scenario—where neither cutting nor holding rates feels like the perfect solution.

• Market expectations may be too optimistic. Investors have priced in rate cuts by the end of the year. But if CPI prints hot, it could push those expectations out—or remove them entirely.

My View: Hoping for Lower Inflation, But Staying Realistic

Like many market watchers, I’m personally hoping that the CPI will come in cooler than expected. If inflation stays subdued, it keeps the door open for rate cuts later this year, which would provide relief for borrowers, fuel economic activity, and give stocks a further tailwind.

Lower interest rates mean:

• Cheaper borrowing costs for both businesses and consumers.

• More attractive valuations for growth stocks.

• A higher likelihood of economic resilience, particularly if global growth slows further.

However, hope isn’t strategy. If CPI starts creeping up because of tariff-related price increases, the Fed’s hand could be tied. It may be reluctant to cut rates in the face of even moderate inflation acceleration.

Key Indicator to Watch in the CPI Breakdown

When the data drops, here’s what I’ll be looking at beyond the headline number:

1. Core CPI – This strips out volatile food and energy prices and gives a better sense of underlying inflation trends. If Core CPI surprises to the upside, it’s a stronger argument against rate cuts.

Market Impact: Stocks, Bonds, and Sentiment

A lower-than-expected CPI could send equities higher—especially rate-sensitive sectors like real estate, tech, and consumer discretionary. The bond market might also respond with falling yields, reflecting expectations of future cuts.

On the other hand, a hot CPI print could trigger:

• A sell-off in growth stocks, which are sensitive to interest rate expectations.

• A rise in bond yields.

• A strengthening U.S. dollar, as traders begin to bet the Fed will hold or even tighten policy.

In short: this CPI number has teeth.

Final Thought: Watch the Data, Not the Drama

The CPI release is just one data point, but today, it’s a particularly important one.

Personally, I remain cautiously optimistic—but flexible. If the CPI shows signs of staying soft, the bull case for stocks and rate cuts remains intact. But if tariffs are already pushing prices higher, we may need to temper expectations for monetary easing.

In uncertain times like this, it’s not about predicting the future perfectly. It’s about staying alert, watching the data closely, and adjusting as the reality unfolds.