By Liz Moyer

-- Stocks rose on Tuesday as investors awaited the inflation report for December that could factor into the Federal Reserve's next decision on interest rates.

That decision won't come until early February, but already the market is anticipating a slower pace of interest rate increases. Traders the Fed to raise rates by a quarter of a percentage point, which is less than the increases at each of its five previous meetings last year. 

The Fed has been trying to quash inflation while guiding the economy to a soft landing, but it has acknowledged that the , which is currently around 50-year lows, will have to rise to help cool prices.

The for Thursday will show how effective the Fed's actions to now have been. Analysts are expecting the CPI to rise 6.5% in December from the year earlier, compared with 7.1% the month before.

Prices are expected to rise 0.1% for the month, about even with the prior reading. 

Consumers headed into the holiday shopping season with a choice on their hands: Lower-income households traded down for lower-priced items and store brands, while more affluent shoppers looked for deals on food and household supplies but continued to shop luxury brands, according to various reports from retailers over the last few weeks.

The Fed is expected to continue to raise rates this year and keep them higher until it is convinced inflation is on a sustained path toward its 2% target.

Here are three things that could affect markets tomorrow:

1. KB Home earnings

The home builder KB Home (NYSE:) is expected to report earnings per share of $2.87 on revenue of $1.98 billion. The housing market has been cooling rapidly after the pandemic boom in home sales.

2. Mortgage applications

At 7:00 ET (12:00 GMT), the data are due out. Applications fell 10.3% in the prior reading as would-be homebuyers shy away from higher interest rates on mortgage loans. 

3. Crude inventories

At 10:30 ET, the government will release the latest data on for the prior week. Analysts expect to show a draw of 2.243 million barrels.