Stock Market Rallies as Inflation and CPI Shape Investor Bets

Investors are bracing for the latest U.S. Consumer Price Index (CPI) report, which could set the tone for the Federal Reserve's upcoming policy meeting. A rate cut is widely anticipated, with markets pricing in a 90% chance of a quarter-point move. Some even speculate a half-point reduction. Headline inflation is forecast to rise 2.9% year over year in August, up from July's 2.7%, while Core inflation is expected to hold steady at 3.1%.

A softer CPI reading could give the Fed room to ease policy, buoying stock prices. Conversely, stubborn inflation may spark fresh volatility. Futures tied to the Dow, S&P 500, and Nasdaq are edging higher, reflecting cautious optimism. Thursday's data release will be decisive for market sentiment.

Inflation trends remain uneven. Producer prices fell 0.1% in August, the first decline in four months, suggesting companies are absorbing costs. Meanwhile, tariffs and sticky services inflation—particularly in housing and healthcare—complicate the path to the Fed's 2% target.