Markets still expect Sept. Fed rate cut, despite hot PPI data

Yahoo

a day ago

Even hotter-than-expected inflation data isn't rattling the market's expectation of an interest rate cut from the Federal Reserve in September. Yahoo Finance Senior Reporters Jennifer Schonberger and Allie Canal outline the latest.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief.
What's also interesting, Jen, is we're not seeing, uh, at least fed funds futures budge that much this morning. That is not the sum total of of inflation expect of, uh, interest rate expectations, but it is a snapshot.
Yeah, it is interesting that we're holding at 90% plus and above. Um, but again, I think it's almost like the market's trying to force the Fed's hand, and we do know there's volatility in these reports. So we'll have to see. We're going to get another CPI. We're going to get another PPI before September. But I think also, I'm reading this morning that you didn't just see the good side of PPI pop up, you saw the services side as well. And, uh, we heard from Chicago Fed President Austin Goolsbee yesterday, and when he talked about the CPI number, he said what concerned him about that was that services increased. So if we are seeing inflation increase, not just on the goods side, but on the services side, that's going to be concerning for the Fed. They're going to need to see more reports, right, before they make any determination on that. But if it's clear that inflation is not staying in the goods lane, and it's spilling over to services, which is what the Fed was concerned about before, we saw inflation coming down before this recent rout popping back up, then that's something to look for.
Um, and Ali, you know, of course, it's not just fed funds futures. We can look across the spectrum, and we definitely saw stocks react negatively to this.
Yeah, stock futures falling across the board here. And it is interesting to see those fed fund futures, uh, still hovering around that 95% when it comes to expectations for rate cuts in September, cuz normally that's correlated to what we see in the stock market. I'm looking at bond yields right now, too. And the 10-year yield is still low, hovering around 4.2%. So we're not seeing this, uh, massive recalibration of rate cut expectations, but we do have a wide range of dispersion when it comes to what Wall Street thinks is going to happen, when it comes to what actual FOMC officials think could happen. And that's because, as Jed was Jen was alluding to, the Fed is really caught between its two dual mandates. And even though we did have a better than feared CPI print, let's not forget that core services did firm up. And that's what I've been hearing from my sources is the fact that we have services inflation that's now firmer. That can offset any increases we see on the good side due to tariffs. And like you were saying, Julie, we have heard from businesses throughout this earning season that they're absorbing a lot of these costs. But from the early commentary on Wall Street, that's only going to last so long, and eventually that has to get passed on to the consumer price index and to, uh, our actual wallets. So that's something to look out for in the fall, and even into 2026, because that's what economists have been telling us. We're not going to see this tariff pass through right away. It's going to take a longer time. And I think markets got a little too excited after that CPI report the other day that maybe we won't see that impact fully materialize. I just, I just think from this hotter PPI print that might not be a reality.