CPI Showdown: December Inflation May See "Reflationary Rebound," Extreme Value Risk Alert

January 12 — Markets widely expect U.S. December CPI to post a temporary rebound (data out Tuesday at 21:30 ET). The uptick is mainly driven by statistical adjustments from the Labor Department’s survey normalization, not necessarily a sign of structural inflation deterioration. November’s nonfarm payrolls and CPI were released in close proximity. Payrolls showed the U.S. labor market continuing to cool: the unemployment rate rose to 4.6% (4.573% before rounding, the highest in nearly four years). However, the data’s reliability has been questioned due to lingering effects of the government shutdown, failing to significantly boost market bets on an early Federal Reserve rate cut. Interest rate futures point to broad expectations the Fed will hold rates steady at its January meeting. The first rate cut is seen in March, April, or June—but no timeline has a consensus pricing above 50%, reflecting high uncertainty in the policy path. Mainstream CPI forecasts for December: - Headline CPI YoY: Slight rise from 3.0% to 3.1% - Core CPI YoY: Remains at 3.0% Three key scenarios: 1. In-line with expectations: Limited impact on risk assets; market focus shifts to key technical reactions. 2. Significantly above expectations (especially core CPI): Inflation stickiness concerns mount, potentially temporarily suppressing risk appetite. 3. Unexpected sharp decline (low probability): Could resonate with weakening employment, strengthening easing bets and bullish for risk assets. December CPI may act as a short-term volatility amplifier. Investors should watch for "extreme readings" that could jolt rate expectations and asset pricing.