An inflation report to be released by the U.S. Bureau of Labor Statistics (BLS) this Thursday will show that prices a typical consumer pays for goods and services around the nation rose at a slower pace.

The easing of supply chain constraints has begun to put downward pressure on prices on the economy's supply side. In contrast, rising interest rates and slower economic growth have added pressure on the demand side of the economy.

Trading Economics estimates that the December Consumer Price Index (CPI) increased by 6.7%, down from 7.1% in November. In addition, the CPI, which takes the volatile food and energy components out from the consumer basket, rose by 5.8%, down from 6% in November.

Amanda Agati, chief investment officer of PNC Asset Management Group, thinks that the U.S. economy entered a period when headline CPI will ease faster than core due to the impact energy prices are having on a year-over-year basis.

Nonetheless, with consensus expecting a core CPI to be 5.7%, well above the Fed's 2% target, she sees the nation's central bank raising interest rates by at least 25 bps at the February FOMC meeting.

Brian Overby, senior markets strategist at Ally Financial, thinks the December CPI will be the macro volatility catalyst for equities this week. "A headline December number slightly below consensus, perhaps -0.2%, may bring about some instant buying in the morning while a hot reading, above 0.2%, would once again spark fears of a 'tighter for longer' Fed, leading to a significant drop," he told International Business Times. "What's different this time is that stocks have rallied somewhat off the lows, so we are not as coiled for a bullish bounce as we got following recent reports."

While the inflation report will keep Wall Street's attention on interest rates and the Fed on Thursday, the kicking off of the earnings Q4 season will steal the show on Friday.

Analysts expect overall earnings to decline by 4.2% and, excluding the energy sector, by 7.1%.

"It's the first expectation for negative earnings growth since 2019 (ex-2020 recession quarters)," Agati told IBT. "Revisions are negative, leading economic indicators are moving lower, so even with an 'average' level of upside surprise, it would be tough to argue that -4.2% estimate is going to get us back to positive earnings growth for the quarter."

Moreover, since the Second World War, economic recessions and earnings recessions have always been moving in tandem, so that clock could start ticking this quarter.

"In the 2015/2016 earnings recession, the mega-cap stocks grew earnings >20% while S&P 500 earnings were down," Agati said. "Investors need to realize those companies will not be there to support the market this time around."

Meanwhile, at 16.9x forward P/E on S&P 500, she thinks analysts are too optimistic, assuming a soft rather than a hard landing. "Consensus earnings estimates are still around 4.5-5% for 2023, and so we expect revisions could turn lower from here if we're heading into a mild economic recession later in the year," she added.

US household spending has remained resilient in the face of stubbornly high inflation