CPI, PPI to test Fed's 57% September hike odds

Two inflation prints in a holiday-shortened week will test the market's 57 percent pricing of a September Fed rate hike, a decision that could determine whether major indices extend their record run or start a correction.

"A reacceleration in inflation would strengthen the case for a rate hike," James Hyerczyk, senior analyst at FX Empire, said. "CPI in line with or below expectations, combined with contained wage gains, would support the case for the Fed to hold rates steady."

The Producer Price Index arrives Thursday, with economists forecasting a 0.4 percent monthly gain after a flat prior reading and core PPI at 0.3 percent after 0.2 percent. Friday's Consumer Price Index is expected to show a 0.4 percent monthly increase, up from 0.1 percent, with the annual rate holding at 3.4 percent. Core CPI is forecast at 0.2 percent month over month, with the annual rate easing to 2.4 percent from 2.5 percent.

The reports follow August payroll growth of 162,000 versus a 55,000 forecast, unemployment holding at 4.1 percent, and wage growth slowing to 3.1 percent. Fed funds futures priced a 57 percent chance of a hike late Friday, ahead of the September 15-16 FOMC meeting under Chair Kevin Warsh. The Dow Jones Industrial Average closed the week at 53,414.25, down 0.27 percent, while the Nasdaq Composite rose 0.40 percent to 26,506.99 and the S&P 500 edged up 0.09 percent to 7,718.60.

The stakes extend beyond the rate decision itself. Inflation remains above 3 percent, squeezing households and businesses, with rising energy prices from the U.S.-Iran conflict and shipping disruptions in the Strait of Hormuz adding upward pressure. Ongoing tariff disputes between Washington and most of the world threaten to push prices higher still. The Fed has held its benchmark rate at 3.5 percent to 3.75 percent since Warsh's first meeting in July, when the committee voted 9-3 to hold with three dissents favoring a hike.

The last time the market priced a comparable probability of Fed tightening was in July, when futures implied roughly a one-third chance of a hike heading into the FOMC. Warsh's hawkish tone at that meeting — "There is no soft inflation target, not on this committee's watch" — set the stage for the current debate. Since then, the 10-year Treasury yield has climbed toward 4.7 percent and the 30-year has touched 5.2 percent, the highest since 2008, as investors weigh the fiscal trajectory and heavy debt supply alongside the inflation path.

Oracle's results Thursday after the close will offer a fresh reading on AI data-center spending, with consensus at $1.74 per share on revenue of $19.13 billion. The company's heavy capital expenditure on AI infrastructure has made it a bellwether for the technology trade, and its credit spreads have drifted toward high-yield territory as hyperscaler debt issuance strains investment-grade markets. AeroVironment reports Wednesday after the close, expected to post $0.30 per share on fiscal first-quarter revenue of $459.9 million, with a $465 million U.S. Army contract embedded in guidance. Kroger reports Friday before the open, with consensus at $1.06 per share on revenue of $34.61 billion.

All major indices remain above their rising 52-week moving averages, confirming an intact long-term uptrend. The S&P 500 faces resistance at 7,816.70, the Nasdaq at 26,875.52, and the Dow at 54,744.33. A cooler-than-expected CPI reading could fuel another push toward those levels, while a hot print risks triggering profit-taking from a market that has already priced in the strong labor market.

This article is for informational purposes only and does not constitute investment advice.