Stock Futures Mixed: Traders Prepare for a Cautious Fed in a Stubborn Inflation Environment

Market Overview: Stock Futures Mixed Amid Inflation Concerns

Stock futures were mixed after the latest reading on inflation showed that prices of select items remain stubbornly entrenched.

• Contracts tracking the Dow Jones Industrial Average were down 0.4%.
• However, S&P 500 and Nasdaq Composite futures traded flat.

Inflation Data Release and Market Reaction

All three indexes initially moved lower following the consumer price index release. Consumer prices rose at an annual rate of 2.5% in August, below expectations for 2.6%. However, core CPI, removing the more volatile food and energy prices, rose by 0.3% monthly, stronger than the expected 0.2% rate.

Bond Market Dynamics

In the bond market, Treasury yields jumped higher after successive declines in prior days. With inflation still a concern, many experts consider it less likely for the Fed to reduce rates by 50 basis points at its next meeting.

Fed's Monetary Policy Outlook

Higher rates are the central bank's weapon to combat inflation, and it is not time to blunt it through a significant reduction just yet. According to Jeffrey Roach, chief economist for LPL Financial, “The Fed will likely cut by 25 basis points in the upcoming meeting while reserving the potential for more aggressive action later this year if we see further deterioration in the job market.” He emphasized the stickiness of service prices, which, excluding rent, have remained stable.