US Equity Investors Focus on Inflation Data to Gauge Fed Rate Cut Depth This Week

This week, US equity investors will closely monitor consumer and wholesale price inflation data to assess the potential depth of upcoming Federal Reserve interest rate cuts.

• Key Reports: The Consumer Price Index (CPI) and Wholesale Price Index (WPI) for August are set to be released on Wednesday and Thursday. These reports will be the final significant economic indicators ahead of the Federal Open Market Committee’s (FOMC) policy decision on September 18, according to Scotiabank.
  
• Inflation Forecasts: Estimates suggest a 0.2% month-over-month increase in both headline and core inflation, with year-over-year headline CPI expected to slow to 2.6% from the prior 2.9%. Core inflation is anticipated to remain steady at 3.2%. Scotiabank also noted a potential “upside risk” from rising core service price inflation.
  
• Rate Cut Projections: Derek Holt, head of capital market economics at Scotiabank, stated that the inflation readings are unlikely to push the FOMC toward a 50 basis-point cut instead of the expected 25 basis points. The FOMC appears committed to a cut, with market conditions and data leaning towards a quarter-point reduction.
  
• Market Expectations: As of Monday, the CME Group’s FedWatch Tool indicated a 75% probability of a 25 basis-point cut on September 18, with a 25% chance of a larger 50 basis-point reduction.
  
• Volatility and Treasury Yields: Investors will also keep an eye on the CBOE Volatility Index (VIX), which surged to around 22 late last week but was down 6.6% early Monday. Additionally, Treasury yields hit 52-week lows on Friday after weak jobs data, drawing further attention this week.