NEW YORK (Reuters) - A critical inflation report in the coming week could further rattle an increasingly tumultuous U.S. stock market, with investors worried about an economic growth slowdown and President Donald Trump's tariffs.

The benchmark S&P 500 was on pace for its worst week in six months, while the tech-heavy Nasdaq Composite on Thursday ended down more than 10% from its December all-time closing high, confirming it has been in a correction for several months.

Investors were grappling with dramatic policy change around the world. Trump's back-and-forth implementation of fresh tariffs on Mexico, Canada and China exacerbated broad concerns about the economy. Markets were also shaken by Germany's surprise spending plans, which drove a selloff in the benchmark German Bund.

As recent U.S. economic data has disappointed, one silver lining for stocks has been markets factoring in more interest rate cuts by the Federal Reserve this year to account for potential growth weakening. 

But Wednesday's U.S. consumer price index report could scuttle those expectations if it confirms that inflation is still simmering at levels that force the Fed to keep monetary policy tighter.

"A hot CPI print will likely scare the market," said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. "The market still wants the Fed to come to the rescue... Until inflation and inflation expectations come down, the Fed is handcuffed."

Investors are mindful of last month's hotter-than-expected CPI data that saw inflation rise 0.5% in January, its biggest monthly gain since August 2023.

CPI for February is expected to have climbed 0.3%, according to a Reuters poll.

The inflation report will be among the last key pieces of data before the Fed next meets on March 18-19. While the central bank is expected to hold its benchmark rate steady at 4.25%-4.5% at that meeting, Fed funds futures indicate nearly 75 more basis points of easing are expected through December of this year, according to LSEG data.

"Equities would not enjoy a hot CPI print because... it softens that Fed easing view that has been starting to build in the market," said John Velis, Americas macro strategist at BNY.

Investors are also increasingly concerned about "stagflation" - slowing growth and rising inflation that is feared to be a toxic combination for a broad range of assets.

An elevated CPI report could "bring the 'S-word' into play," Velis said.

Investors will also focus on Washington, as lawmakers wrangle over a spending bill that would avert a partial shutdown of agencies late next week.

Trade policy remains in the spotlight. Tariffs on foreign imports are expected to hurt corporate profits and increase consumer prices, but investors are weighing how lasting the levies will be against their potential as negotiating tools. Trump on Thursday said Mexico and Canada won't be required to pay tariffs on goods that fall under a prior trade deal until April 2.

Under the new Trump administration, the barrage of initiatives on trade and other issues, such as federal workforce cuts, has fed uncertainty for businesses and consumers. 

Market unease is also rising. The Cboe Volatility index jumped this week and was around its highest level since late last year.

"Volatility is here to stay for a while because we do not have economic and trade policy certainty," said Irene Tunkel, chief U.S. equity strategist at BCA Research.

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