Is a September cut safe after a 0.9% PPI surprise?

Stock futures edged lower as a surprisingly strong report on July producer prices complicated an otherwise buoyant setup for equities. The 0.9% monthly jump in wholesale prices rekindled questions about how quickly inflation pressures are fading beneath the surface.

Even with the PPI surprise, traders largely stuck to expectations for a September rate cut, encouraged by softer consumer inflation earlier in the week. The debate now turns to the size and cadence of easing as officials signal caution about outsized moves.

PPI jolts the narrative, but cut odds remain lofty

The robust factory-gate reading surprised markets, casting doubt on the smooth progress of disinflation. For investors, the risk is whether producer costs bleed into consumer prices or prove a temporary bump.

Yet rate futures still lean toward a September cut as the base case. Positioning reflects confidence that broader price trends are cooling, even if goods and select services show pockets of stickiness.

Did you know?
Producer price inflation often leads consumer inflation by several months, making PPI a closely watched signal for future CPI moves.

Fed officials temper talk of a jumbo move

San Francisco Fed President Mary Daly urged restraint, saying a large cut could send an unnecessary signal about labor market stress. Her tone suggests the committee favors a steady, data-dependent path over dramatic gestures.

Chicago Fed President Austan Goolsbee also flagged firmness in parts of services inflation, reinforcing the case for caution. Together, their remarks keep 50 bps on the table but far from the baseline scenario.

Markets weigh gains near records with fresh risks

Stocks lingered close to record territory despite the wobble in futures, underlining resilient risk appetite. Earnings momentum and hopes for lower policy rates continue to offset intermittent inflation surprises.

Treasury yields flickered on the PPI beat as traders recalibrated term premia and growth expectations. The balancing act now hinges on whether forward indicators cool decisively before the September meeting.

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What to watch next on the data front

Upcoming activity and price readings will shape conviction on the easing path. A benign services trend could validate the soft-landing view, while renewed breadth in inflation would complicate cuts.

Market sensitivity remains high around labor indicators and core measures excluding volatile categories. Any upside surprises may shift the conversation from the pace of cuts to the prudence of starting them.

The road to September: size matters, timing more so

With a cut widely expected, the focal point is whether the Fed opts for incrementalism. A measured start could preserve flexibility while testing how inflation behaves as policy eases.

For investors, the message is to expect bumps on a generally supportive path. The PPI jolt raises questions, but the broader trend, not a single print, will likely steer policy in the weeks ahead.