Officials at the Federal Reserve have repeatedly said their next moves will be guided by incoming economic data—and that’s made markets especially twitchy at the slightest information on the trajectory of inflation and the economy. 

Case in point: the Dow Jones Industrial Average stock index fell nearly half a percentage point Wednesday morning after the Bureau of Economic Analysis slightly downgraded an earlier estimate of how fast the economy grew in the fourth quarter, and upwardly revised its estimate for how fast inflation grew at the end of 2023.

The latter part of the revision was relatively small—consumer prices, as measured by Personal Consumption Expenditures, increased 1.8% over the quarter instead of the 1.7% first estimated. But with traders trying to anticipate when the Fed might finally be confident it has inflation under control enough to stop squeezing the economy with high interest rates, even a small change in the central bank’s preferred measure of inflation appeared to be enough to move markets. 

“Markets are very sensitive to it because that’s going to factor into their expectations of when the Fed is going to start easing their foot off the brake,” Ryan Sweet, chief economist at Oxford Economics, said in an interview. “There could be a tendency for markets to overreact in one direction or the other just based on the incoming inflation data.”

Policymakers at the Fed have said in recent speeches that they are considering when to begin cutting the fed funds rate, which influences interest rates on mortgages, car loans, business loans, and all kinds of other credit. With borrowing costs of all kinds at or near their highest in decades, an interest rate cut would be welcome news for household budgets and businesses alike. However, Fed officials are wary of cutting the rate too soon, fearing that inflation could flare up again.

More insight into inflation’s course is coming Thursday when the bureau releases its Personal Consumption Expenditure data for January. That is especially important for the Fed—and the markets—because officials pay more attention to PCE inflation than the more widely reported CPI. With traders on edge, a surprise in either direction could rattle financial markets.  

“In a market environment where people are worried about a Fed keeping rates higher for longer, any drop in economic activity (or inflation) can be seen as another reason why the Fed can cut rates sooner,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in an email.