Fed Rate-Cut Bets Hold, but September’s Magnitude in Doubt
Despite the inflation spike, fed funds futures continue to price in a 93% chance of a 25 basis point rate cut at the Fed’s September 17 meeting, according to CME’s FedWatch tool. However, the PPI release all but eliminated any market speculation around a deeper 50 basis point move.
Treasury Secretary Scott Bessent’s recent suggestion of such a cut now appears unlikely. StoneX’s Matt Weller noted that the data makes it “hard to justify more than one or two cuts this year,” underscoring concerns over the Fed’s capacity for an aggressive easing cycle without further labor market deterioration.
Treasury Yields Edge Up on Sticky Inflation Risks
Short-dated Treasury yields climbed in reaction to the data, with the 2-year yield rising 4.3 basis points to 3.73%. The benchmark 10-year yield added 4.1 basis points to 4.281%. While consumer inflation earlier in the week suggested a modest easing, the PPI’s acceleration suggests underlying inflation pressures may still be brewing, potentially complicating the Fed’s path forward.
Jackson Hole Looms Large for Rate Clarity
Traders are now focused on the Federal Reserve’s annual Jackson Hole Symposium (August 21-23), where Chair Jerome Powell could use his speech to recalibrate expectations. Deutsche Bank analysts reminded markets that Powell has previously used this platform to telegraph key policy shifts. Any signal toward caution on inflation could temper market optimism for multiple cuts.
