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The January Consumer Price Index (CPI) will play a key role in shaping expectations around interest rates. Markets expect inflation to slow to around 2.5% year-on-year. However, despite the projected cooling, futures data suggests the chances of an immediate rate cut from the Federal Reserve remain low for now.

The January inflation report lands Friday morning, and traders are treating it like a key policy event. CPI is expected at 2.5% year-on-year, which would bring inflation back to May 2025 levels despite tariff measures introduced under Donald Trump. A softer reading could lift rate-cut hopes and support Bitcoin and broader crypto. But a hotter print may push the dollar and yields higher, putting pressure on risk assets.

Wall Street expects a mixed inflation report for January. Headline CPI is projected at 0.26% month-on-month and 2.5% year-on-year, slightly lower than December’s 0.31% and 2.7%.However, core CPI is expected to rise 0.34% monthly, up from 0.24% in December, though the yearly rate may ease to 2.5%. Forecasts for core remain widely split, showing uncertainty around seasonal effects and tariff-related price pressures.

There’s a simple way to gauge where inflation may head. When oil prices fall compared to the previous month, CPI usually comes in lower than expected. When oil prices rise, inflation tends to surprise on the upside. Since oil prices increased in January, the upcoming CPI report is likely to show higher-than-expected inflation, which could impact market sentiment.