Investors and policymakers are bracing for Thursday’s release of U.S. consumer price data for March, but a flurry of geopolitical and economic developments is shifting the spotlight away from the figures themselves and toward the broader outlook.

Headline inflation is forecast to slow to 2.5% year-on-year in March, down from 2.8% the month before. The core rate—which excludes food and energy—is expected to tick down to 3.0%. Monthly inflation is seen easing as well, with headline CPI projected at just 0.1% and the core rate rising slightly to 0.3%.

But while the data may offer some short-term relief, economists are warning that the path ahead is far from clear.

Tariffs, Prices, and Policy Pivots

Recent volatility in tariff policy is adding to the uncertainty. After rattling markets with threats of steep new levies on global trade partners, President Trump shifted tone on Wednesday evening, announcing a 90-day pause on reciprocal tariffs. While China will still face a 125% tariff on U.S. imports, other countries that refrain from retaliation will see their tariffs lowered to 10%, effective immediately.

This temporary softening has tempered inflation expectations in the short term, but economists caution that if elevated tariffs remain in place, they could drive prices higher while simultaneously weighing on growth.

“Goods prices could climb due to the tariffs,” said one economist, “but weaker demand might drag services inflation lower. It’s a delicate balance.”

Risks on Both Sides of the Scale

The Federal Reserve is acutely aware of this delicate moment. Minutes from the FOMC’s March meeting painted a picture of heightened uncertainty. Policymakers flagged growing downside risks to employment and economic growth, while acknowledging persistent upside risks to inflation.

In other words, the economy may be heading into a period where inflationary pressures remain elevated—even as growth shows signs of slowing.

Further complicating the picture, U.S.-China tensions show no signs of easing. A potential escalation in the trade dispute could drive up import prices, particularly for consumer goods, and add fresh fuel to the inflation fire.

The Road Ahead

While Thursday’s inflation print is unlikely to reflect the full impact of these developments, the tone of the conversation has clearly shifted. Economists are recalibrating their models, markets are on edge, and the Fed is watching closely.

With inflation possibly peaking around 4% later this year and GDP growth projected to slow to an annualized pace of just 1.0% to 1.5%, policymakers are navigating a narrow path. Whether they can guide the economy to a soft landing remains an open question.