The upcoming U.S. inflation report could unsettle stock investors and heighten concerns about rising Treasury yields and uncertainties surrounding Donald Trump’s policy plans. After two strong years, the stock market has stumbled in early 2025, with the S&P 500 down about 1% year-to-date.

Inflation resurgence is a major risk for equities, prompting the Federal Reserve to scale back its anticipated interest rate cuts due to faster-than-expected inflation. Markets have delayed expectations for the next rate cut to June following a robust U.S. jobs report, which saw stocks drop and Treasury yields reach new highs.

The consumer price index (CPI) for January 15 is a key inflation measure that could trigger further market volatility if it exceeds expectations. Marta Norton, chief investment strategist at Empower, noted that monthly inflation data can significantly impact the market, and any re-acceleration of inflation would be concerning.

Attention has shifted to inflation data after a strong December employment report, with payrolls increasing by 256,000 and the unemployment rate dropping to 4.1%. This job growth has added uncertainty about inflation trends and the Fed’s potential rate cuts in 2025, according to Sam Stovall, chief investment strategist at CFRA.

The December CPI is expected to show a 0.3% monthly increase, per a Reuters poll. Despite the Fed’s confidence in moderating inflation leading to rate cuts in September, annual inflation remains above the 2% target, with a projected rise to 2.5% in 2025.

Minutes from the Fed’s latest meeting revealed concerns that Trump’s trade and immigration policies could prolong efforts to reduce inflation. The Fed is expected to pause its rate-cutting cycle at the month’s end, but stronger-than-expected CPI data could delay further easing projections.