It’s CPI week in the US and Jerome Powell will trudge up to Capitol Hill for his semi-annual interrogation session.

Powell’s (for now figurative) waterboarding offers lawmakers a chance to grandstand and scapegoat the technocrats. Republicans will try to bait Powell into blaming Joe Biden for America’s allegedly parlous fiscal circumstances (which the GOP’s hell-bent on making worse with another unfunded tax cut for the rich and corporations) and Democrats will quiz Powell on the perils of regulatory relief for Wall Street.

In all likelihood, he’ll be asked by Democrats about the Fed’s decision to back away from DEI initiatives, and also about the macro-policy ramifications of Donald Trump’s immigration crackdown. Note that both parties now espouse some version of economic nationalism, so while tariffs will come up (probably a lot), protectionism does have some bipartisan support.

Of course, Democrats aren’t fans of Trump’s brand of protectionism, particularly when it manifests as capriciousness towards the country’s closest allies, but unfettered free trade’s out of style on both sides of the aisle, and globalization’s in a bear market. To the extent the tariff discussion’s a partisan flashpoint, it’s mostly about Trump’s methods, not necessarily about his goals, at least not when those goals are defined as bringing back American factory jobs, securing supply chains and keeping the pressure up on Beijing.

In the context of the Fed, the tariff debate’s all about the read-through for inflation, and Powell will be asked about that. During his last two press conferences, Powell was adamant that the Fed needs to wait and see how trade policy actually develops before incorporating tariffs into the rate-setting calculus, but an enterprising Republican lawmaker might query Powell on the discrepancy between his contention that the Committee hasn’t passed judgment on Trump’s policies and the fact that some policymakers did indeed begin to factor in tariffs when they submitted their core PCE projections for the December SEP.

As for Wednesday’s CPI release, consensus is looking for 0.3% from the MoM core readout. That’s too warm, but the saving grace (and we’ve seen this over the past two months) is that warm MoM core CPI prints don’t necessarily mean likewise warm core PCE prints. As much attention as CPI gets, the Fed sets policy based on PCE prices.

The figure above’s a familiar reminder: The monthly CPI readings remain too warm. Seen in that light (under that heat lamp), there’s a sense in which the Fed’s narrative about an “intact” disinflation trajectory seems disingenuous. Indeed, Powell subtly changed tack on that during last month’s presser. Rather than insisting the actual disinflation trajectory is intact, he specified that the narrative still seems plausible. “The story’s there,” as he put it, “but seeming to be set up for [further progress] and seeing it” are two different things.

A CPI overshoot would be a bad look in light of the warm read on average hourly earnings which accompanied the January jobs report. Monthly AHE growth of 0.5% isn’t consistent with 2% consumer price growth, or at least not historically. That’s a pretty easy regression to run, so I’m not sure where the quibbling (which I’ve seen from some economists and analysts) comes from.

The inflation update will also be eyed in the context of an alarming month-to-month increase on year-ahead inflation expectations in the preliminary University of Michigan sentiment readout for February. As it turns out, households are cognizant that tariffs, all else equal and assuming domestic corporates impacted by new levies don’t absorb the cost of the duties, can act as a de facto consumption tax.

Additional Fed cuts are off the table for the time being barring some manner of shock. Market pricing for 2025 easing moved meaningfully hawkish on the heels of the jobs report, as the headline miss was overshadowed by the above-mentioned AHE print and revisions which, despite taking some away from 2024 overall, suggested the pace of hiring picked up even more than expected into year-end.

As the figure shows, market pricing’s now sitting around 37bps for the year.

“The [jobs report] bought the Committee some more time to evaluate and incorporate the trade war into its outlook, and we maintain that the first truly ‘live’ meeting during the first half of this year is June — and that is by no means a done deal,” BMO’s Ian Lyngen and Vail Hartman said. “This isn’t to suggest the probability of cuts won’t remain volatile,” they added. “In fact, that’s precisely what we’re expecting as the incoming data and Trump’s policy influence the market’s economic and monetary policy expectations.”

In addition to Powell, PPI and CPI (which’ll include annual revisions, by the way), traders will get an update on nominal spending Friday with the release of retail sales figures covering January. On Monday, the New York Fed will release its monthly consumer survey, which’ll be scrutinized for any uptick in Americans’ price growth expectations.

Meanwhile, Trump’s incessant tariff bombast will be a source of headline risk, and a country divided will continue to monitor “DOGE” developments, as Elon Musk’s effort to access vast troves of government data is adjudicated both in the literal courts and in the court of public opinion.