Dow Jones futures fell by 0.09%, hovering around 49,750 during the European session on Tuesday. At the same time, S&P 500 and Nasdaq 100 futures dropped by 0.08% and 0.14%, reaching approximately 7,010 and 25,920, respectively. Traders are waiting for the US Consumer Price Index (CPI) data for December.

Concerns About Fed Independence

Concerns about the Federal Reserve’s independence have increased after US federal prosecutors began a criminal investigation into Fed Chair Jerome Powell. This investigation stems from comments he made to Congress regarding a renovation project. On Monday, Wall Street experienced gains; the Dow Jones rose by 0.17%, the S&P 500 by 0.16%, and the Nasdaq 100 by 0.26%. Financial markets expect two rate cuts from the Federal Reserve this year, the first of which could happen in June. According to the CME Group’s FedWatch tool, there is a 95% chance that rates will remain steady during the meeting on January 27-28. US inflation is projected to hold steady at 2.7% year-over-year in December 2025, while core inflation may rise to 2.7% from 2.6%. Monthly headline and core CPI are estimated to increase by 0.3%, largely due to rising goods prices. Any surprise spike in inflation may hinder the US central bank’s ability to cut rates. The Dow Jones Industrial Average was created by Charles Dow and includes 30 of the most traded stocks in the US. It is price-weighted and often criticized for not being as representative as indices like the S&P 500.

Caution in the Markets

Caution is growing as everyone waits for today’s CPI data for December 2025, affecting futures. If inflation is higher than the predicted 2.7% core rate, it could disrupt market expectations for two rate cuts this year. This uncertainty makes making large bets on indices risky before the announcement. Rather than guessing the market direction, traders can use options to benefit from the anticipated increase in volatility. The VIX index, a key measure of market fear, has risen above 16 this week, compared to an average of 13 in the last quarter of 2025, indicating nervousness. Utilizing a straddle on an ETF like the SPDR S&P 500 ETF (SPY) could yield profits from significant market movement post-data release. Beyond today’s inflation numbers, our focus will quickly turn to Q4 earnings reports from major banks like JPMorgan. These reports will offer direct insights into economic health, especially regarding their net interest margins and loan loss provisions. Bank stocks rallied in late 2025 on hopes for a soft economic landing, and these earnings will be the first big test of that outlook. The investigation into the Fed Chair adds a layer of political uncertainty that we haven’t seen in a while, creating unpredictable risks. This type of headline risk can lead to sudden market fluctuations, making protective puts a smart choice for hedging long equity portfolios. We’ve seen similar unpredictable moves during the trade war tariff announcements in the late 2010s. As we approach the end of the month, the Fed’s policy meeting on January 27-28 will be the next major event to watch. While the CME FedWatch Tool suggests a strong likelihood of holding rates steady, we’ll be closely analyzing the official statement for any tone changes. Powell’s commentary on the ongoing inflation seen throughout 2025 will be crucial as we enter February. Create your live VT Markets account and start trading now.

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