As a combative presidential debate grabs the spotlight, investors await August consumer inflation data on Wednesday, which will provide clarity on Federal Reserve policy. With markets attaching a roughly 35% chance to a 50-basis point rate cut at the Fed’s next meeting, the latest CPI print could shake traders’ rate bets and, therefore, broader markets.
The dollar slipped against major currencies after Democrat Kamala Harris put her Republican rival, Donald Trump, on the defensive in their first presidential debate. The debate offered little clarity on the next president’s economic policies, and analysts said Harris succeeded in shifting prediction market odds in her favor even though it is still too early to know what the effects of her plans might be.
Investors are watching the release of CPI data, which is expected to show inflation easing back toward the central bank’s target. A weaker-than-expected print could prompt the Fed to delay the timing of its anticipated rate cut, a move that would support stocks and reassure global markets.
Inflation is an important factor in the Fed’s decision-making, as a higher inflation rate could lead to more borrowing by consumers and businesses, causing prices to rise. This is why the Fed typically cuts rates when prices are rising quickly, so it can slow the pace of inflation.
Wall Street futures dipped after the debate, with S&P 500 and Nasdaq futures trading off their highs. Investors were also preparing for the release of monthly job figures later in the day, which would give further insight into the economy’s state. The data is due out at 8:30 a.m. ET (1230 GMT).
Analysts expect U.S. workers to increase by 178,000, but job gains have been sluggish lately. The unemployment rate is expected to edge lower to 4.1%.
As a result, wages may rise slightly, boosting inflation. The Fed’s preferred measure of inflation, the core consumer price index (CPI), is expected to remain at 2.6% in September after falling in July and August. The “core” figure excludes volatile components such as food and energy.
Investors are also waiting to see whether the latest data confirms that the economy’s recent weakness has prompted more companies to cut their profit forecasts. Earnings estimates have been lowered for S&P 500 component airlines and consumer goods companies like Procter & Gamble. The airline industry is also weighed down by concerns that a potential trade war with China could depress growth. This could lead to higher costs for manufacturers and, in turn, higher inflation. Higher inflation would hurt the profits of the airline and consumer goods companies, which rely on exports for revenue. The airlines and consumer goods companies also hold prominent treasury bond positions, which could be vulnerable to higher interest rates.
