Fed’s Rate Cut Decision Hinges on Inflation and Job Market Signals

U.S. stock index futures slightly reduced losses following a report aligning with expectations of an interest rate cut in September. The Fed's focus has shifted to the job market, although tariff-related price increases are becoming evident. Central bank moves are heavily scrutinized amid economic unease.

U.S. stock index futures trimmed some losses on Friday after an inflation report that met expectations left open the possibility of an interest rate cut by the Federal Reserve next month. The Personal Consumption Expenditures Price Index rose by 2.6% in July, slightly above the Fed's 2% target.

While the core index—excluding volatile categories like food and energy—rose 2.9%, traders believe this indicates that U.S. tariffs on imports are starting to affect consumer prices. The lifting of tariff exemptions for low-value packages also heightened costs for businesses and consumers.

The likelihood of a 25 basis point interest rate cut in September sits at 84.2%, as suggested by LSEG data. Fed Chair Jerome Powell's focus has shifted towards supporting the labor market. Short-term Treasury yields fell after these developments, while Nasdaq futures slipped following underwhelming forecasts from Dell and Marvell.