Inflation double feature: two data prints that could rewrite market rate-cut fantasy

• CPI measures consumer-facing prices while PPI captures producer costs, with the latter signaling potential future consumer price pressure; a firm core CPI combined with rising PPI would trigger hawkish repricing
• Markets remain vulnerable in rate-sensitive areas: 2-year and 10-year Treasury yields would move first, followed by impacts on the dollar, mega-cap growth stocks, homebuilders, and small caps
• The key risk isn't a surprise spike but rather stalling disinflation progress, which would undermine the market's assumption of predictable policy easing and force investors to reprice rate-cut timelines

Summary: Key Inflation Data to Test Fed Rate-Cut Expectations

Two critical inflation reports in February 2026 will test market assumptions about Federal Reserve rate cuts. The Bureau of Labor Statistics will release January's Consumer Price Index (CPI) on February 13, followed by the Producer Price Index (PPI) on February 27.

Key Market Implications:

The CPI measures consumer-facing inflation including groceries, gasoline, rent, and services. Investors will focus on core readings (excluding food and energy) and stubborn components like housing and services. Any stalling in disinflation—rather than outright reacceleration—could force markets to delay expected rate-cut timelines.

The PPI, arriving later in February, measures producer input costs and serves as a leading indicator for future consumer inflation. A PPI uptick would signal that recent consumer price relief may be temporary, creating a "spoiler" scenario for rate-cut expectations.

Market Sensitivity:

Markets currently price in multiple rate cuts for 2026, making them vulnerable to upside inflation surprises. Key indicators to watch include:

• 2-year and 10-year Treasury yields (most sensitive to policy changes)
• Dollar strength against major currencies
• Rate-sensitive equities (mega-cap growth, homebuilders, small caps)
• Volatility and credit spreads

Potential Outcomes:

If core CPI remains firm and PPI shows pipeline pressure, expect hawkish repricing with rising front-end yields, stronger dollar, and pressure on long-duration growth stocks. Conversely, renewed disinflation would cement rate-cut expectations and support risk assets.

The real risk isn't necessarily a dramatic inflation spike, but rather a stalling improvement trajectory that undermines the market's comfortable assumption of imminent policy easing.