The Nasdaq 100 (NDX) is jumping higher as the odds of a 50 bps rate cut are now back in play following a weaker-than-expected jobs report last week. The odds now stand at 11.8% after remaining at 0% between August 14 and September 4.
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On top of that, August’s producer price index (PPI) will be released on Wednesday, while the closely watched consumer price index (CPI) will be published on Thursday, providing key data points on inflation ahead of the September 16-17 Federal Open Market Committee (FOMC) meeting.
Fed Caught Between Rate Cuts and Inflation Risks
The Fed cutting rates is a double-edged sword. Lower rates stimulate economic activity and job growth, but they also signal that the economy is in a vulnerable spot. At the same time, the Fed is in a difficult position and must grapple with the possibility of a revival in inflation from the Trump administration’s tariffs. Higher rates help combat inflation by making borrowing more expensive, slowing down consumer spending and business investment.
If inflation rises after a rate cut, the central bank may be forced to backtrack and raise rates, risking its credibility in the process.
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