Wall Street is back to betting that the Federal Reserve will ride to the rescue, and that could be risky if the numbers don’t line up. A weak July payrolls report, paired with big downward revisions to earlier months, has markets convinced the Fed might cut rates when policymakers meet September 16–17.
According to CME Group’s FedWatch tool, traders now see an almost certain second cut before year-end and about a 50-50 shot at a third. Emmanuel Cau, head of European equity strategy at Barclays, said:
“We are back to the ‘bad is good’ mantra, with the Fed expected to save the day by cutting rates early and big enough to prevent a recession – something the U.S. President would likely welcome. However, we are not convinced a September cut is a given, yet.”
That assumption will be tested fast. The first potential roadblock comes Tuesday, when the Bureau of Labor Statistics releases July’s consumer price index. Forecasts point to a 0.3% gain for headline CPI and 0.2% for core.
The report lands days after President Donald Trump fired the BLS commissioner in the wake of the disappointing jobs data. Then on Thursday comes the July producer price index, a measure of wholesale costs that could show pressure from Trump’s tariffs.
Cau warned, “A hawkish print would likely be a reality check for markets” and keep the rally locked into a narrow group of big growth names. “A soft CPI print,” he added, would likely lock in cut expectations, push stocks higher, and cap the dollar’s short-term upside.
Inflation data in focus as rate cut bets shift
JPMorgan’s chief U.S. economist Michael Feroli is leaning toward a run of cuts, saying the Fed could lower rates at all three remaining meetings through the end of 2025 “before pausing indefinitely.” He noted:
“It’s not unprecedented for the Fed to ease when stocks are at or near all-time highs. It’s rarer when stocks are at the highs and inflation is above target and inflecting higher.”
The bank had previously forecast its first cut in December, but now sees a 25-basis-point reduction in September, followed by three more quarter-point moves before stopping. Feroli wrote that for Chair Jerome Powell, “the risk management considerations at the next meeting may go beyond balancing employment and inflation risks.”
For traders, the path to September now runs straight through next week’s inflation prints. Stronger-than-expected CPI or PPI data could force the Fed to hold fire. Softer readings could do the opposite, locking in a September move and setting the tone for the rest of the year.
Trump’s Fed board pick adds more uncertainty to September
Trump on Thursday nominated Stephen Miran, chair of the Council of Economic Advisers, to temporarily replace outgoing Fed Governor Adriana Kugler.
The 14-year seat becomes permanently vacant on February 1, and the White House says it’s already hunting for a long-term nominee. Trump also said he is considering possible replacements for Powell, whose term ends in May 2026.
Miran’s confirmation before the September meeting isn’t guaranteed, but JPMorgan analysts believe his presence could sharpen divisions on the rate-setting committee.
The nomination follows Trump’s repeated but unsuccessful pushes to get the Fed to cut rates more aggressively. Installing Miran, even briefly, could give him a more direct line into the central bank’s decision-making.
For now, investors are left with two big variables: the inflation numbers due next week and the political maneuvering around the Fed’s board. Both will hit before September 16–17, and both could decide whether the market’s latest rescue fantasy actually happens.
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