Wall Street sees September rate cut as sure thing — CPI inflation data will have much to say about what comes next

 Markets are bracing for September to be the month that the Fed decides to cut the interest rates after the weakest jobs data in years was reported for August. There was just a 22,000 payroll rise, and traders see a 100% chance of at least a 25-basis point cut and even some odds of a 50-basis point move. This is a signal of how quickly the opinions have shifted to the thought that the labor market might be cooling down. Fed officials are still claiming that the upcoming CPI will be crucial in determining how to adjust the pace of the cuts. Investors feel that with soft labor data and sticky service inflation, the picture and indicate a drop in interest rates.

In the longer-term tariff, related price pressures pose a key risk. More analysts warn that if more of the tariff impact filters through to consumer prices, core inflation could remain above the Fed's 2% target. This would limit how far policymakers can go. Markets have penciled in multiple cuts into 2025-2026; however, these cuts may be overly optimistic. Gradual cutting should support the equity markets in the short term, given the weak labor data and persistent inflation that will define how aggressive the Fed can be. 

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