US Inflation Rate 2025: Why 3% is a Crucial Benchmark for Inflation?

Today, Wednesday, March 12, 2025, the release of US inflation rate data is drawing significant interest and cautious anticipation from investors. This follows notable declines in US stock market indices, which recently experienced their sharpest daily and weekly losses in several years and are now trading at their lowest levels since September 2024. The data is also being released amid global economic concerns regarding the impact of mutual tariffs on price levels. Additionally, there are growing expectations of a slowdown in the US economy during the first quarter of this year, particularly as consumer spending has declined.

Figure 1: US inflation data, Bureau of Labor Statistics

Market Expectations for US Inflation Rate 2025

Markets are closely monitoring how the actual inflation reading will compare to both expectations and the previous figures. Projections suggest that annual inflation will ease slightly to 2.9%, down from the previous reading of 3%. This outcome is likely to be welcomed by Americans, as it indicates that inflation remains stable below a key historical threshold, as illustrated in the attached chart, near the 3% mark.

It is worth noting that this US inflation data release comes just one week before the Federal Reserve's monetary policy meeting. The Fed Chairman recently emphasized that monetary policy is not predetermined and will depend on data released at each meeting. This suggests the potential for significant price movements following the data release, particularly as Fed members continue to highlight the importance of ensuring inflation returns to the 2% target level.

Investors will closely focus on whether the inflation reading signals optimism and supports the anticipated interest rate cuts, particularly if it comes in lower than the expected 2.9%. Conversely, if the reading meets or exceeds expectations, it may justify maintaining a tight monetary policy stance.

Expected Scenarios by Analysts:

Scenario 1: A Reading Higher than the Previous (3%)

This scenario would raise concerns about a potential resurgence in inflation, likely prompting the Federal Reserve to maintain its tightening stance on interest rates. Such an outcome could be positive for the US dollar but negative for stock indices and gold.

Scenario 2: A Reading at or Below Expectations (2.9%)

This would signal relief in the markets, potentially supporting US stock indices while weighing on the US dollar.

Analysts anticipate that the data release will trigger volatility in financial markets. It's important to note that the initial market reaction regardless of the actual reading could be sharp and volatile before the markets begin to stabilize.