The Federal Reserve’s policy meeting is the big event in the coming week, but Tuesday’s consumer inflation report could hold more sway for markets and even help set the central bank’s agenda. The consumer price index is unlikely to impact the Fed’s decision to raise rates by a widely anticipated half percentage point Wednesday. But it could influence the post-meeting tone, both in the Federal Open Market Committee’s statement and in how Fed Chairman Jerome Powell describes the central bank’s battle with inflation at the end of the two-day meeting. The CPI is expected to rise 0.3% on the headline, and 0.4% for core, which excludes food and energy, according to Refinitv. That compares with an increase of 0.4% for headline inflation and 0.3% for core in October. Inflation and a hawkish Fed “I think the data can influence his press conference and how hawkish he is,” said NatWest Markets’ John Briggs. “If we have a stronger CPI number, he could stress we have to go further.” Briggs said the report should not impact the Fed’s quarterly release of forecasts for inflation and interest rates, which will be issued with the policy statement Wednesday afternoon. If CPI is hotter than the 7.7% year-over-year increase in October, the chairman could warn of a more aggressive agenda for the Fed, Briggs said. “It would have him be aggressive on two fronts. The destination [for rates] could be higher, and the second is that rates are going to stay higher for longer,” said Briggs. Currently, many market pros expect the Fed to raise interest rates to 5% or more before stopping next spring. The fed funds target rate is currently at 3.75% to 4%, after six rate hikes. The Fed is expected to reduce the size of its next hike to 50 basis points, after four hikes of 75 basis points. A basis point equals 0.01 of a percentage point. The market rallied after the last CPI but it tumbled after last Friday’s strong November jobs report , and the especially strong wage data in that release. There were 263,000 jobs created, plus wages grew at a higher-than-expected 5.1% rate year-over-year. Market reaction “I’ve been a bit surprised we were able to brush off the wage number as much as we were,” said Briggs. “If you get a higher CPI report on the back of that, it could create some significant market instability ahead of the Fed meeting.” James Paulsen, chief investment strategist at Leuthold Group, said if the CPI print is not as hot as expected, that could boost the market. “It could be very bullish, if it’s big enough on the downside,” he said. “If it’s in line, maybe the Fed is not going to be a big deal because people will pretty much know what it is. The dollar, the bond market, the stock market to some degree have already discounted and made up their minds about 50 basis points.” Paulsen said the market view is shifting and investors are becoming more worried about the possible results of Fed tightening rather than why it is raising interest rates. “I think the markets are increasingly speaking and ignoring the Fed. The primary fear was inflation,” he said. “Recession has taken over as the top fear.” Stocks were weaker in a turbulent past week, while bond yields were lower. The S & P 500 was down by 2.7% for the week by Friday, and the widely watched 10-year Treasury yield was at 3.56%. Some strategists say the market is caught in a downtrend, driven by fear of recession and worries that profits will be weaker when fourth-quarter earnings are reported. Some expect the market to retest its lows in the first quarter . Paulsen said he does not expect the market to return to its lows. Falling yields should also help stocks. Recession fears “If you’re more worried about recession than inflation, that means you bring in more bond buyers than sellers,” he said. Bond yields fall as prices rise. “The more aggressive the Fed talks about raising rates, the more the worries about recession increase. The more bond buyers are brought in.” Paulsen said he expects it was inflation that drove the market to its lows, and it is now priced in. “I already see a new easing cycle. It’s in play,” he said. He also expects corporate earnings will not be as weak as some analysts expect. The decline in the dollar, drop in interest rates and falling commodities prices are all helping. “Companies for the first time are enjoying lower capital costs and commodities prices. … We’re seeing a lot stimulus dumped on this economy,” he said. Besides the consumer inflation data, the economic calendar is jam-packed in the week ahead. Retail sales, industrial production, and the Philadelphia Fed manufacturing survey as well as the Empire State manufacturing survey are released Thursday. S & P Global manufacturing and services PMI are released Friday. Week ahead calendar Monday Earnings: Oracle , Coupa Software, Mesa Air 2:00 p.m. Federal budget Tuesday Federal Reserve begins two-day meeting 6:00 a.m. NFIB small business survey 8:30 a.m. Consumer price index Wednesday Earnings: Lennar, Trip.com 8:30 a.m. Import prices 2:00 p.m. Fed statement and projections 2:30 p.m. Fed Chairman Jerome Powell briefing Thursday Earnings: Adobe, Jabil 8:30 a.m. Initial jobless claims 8:30 a.m. Retail sales 8:30 a.m. Empire state manufacturing 8:30 a.m. Philadelphia Fed manufacturing 9:15 a.m. Industrial production 10:00 a.m. Business inventories 4:00 p.m. TIC data Friday Earnings: Accenture, Darden Restaurants 8:30 a.m. Business leaders survey 9:45 a.m. S & P Global Manufacturing PMI 9:45 a.m. S & P Global Services PMI