The Stock Market Thinks a September Rate Cut Is in the Bag. But 2 Obstacles Remain That Could Derail It.

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The market’s been high on the idea of a rate cut for September, like a junkie eyeing the last hit of the night, and why wouldn’t it be? After Jerome Powell’s wimpy little speech at the Jackson Hole Symposium, where he practically handed the market the keys to the kingdom, traders saw the path to lower rates paved with gold, and the odds of a rate cut soared like a rocket fueled by desperation. But let’s not get ahead of ourselves here. Traders have jumped in and out of this rate-cut train like it’s a strip club on a Friday night-sometimes they think they’re in, sometimes they think they’re out. Now, we’re staring down a two-fold monster of economic data that could easily send the whole thing crashing to the ground.

Let’s take a breath. Don’t be fooled by the easy ride the market thinks it’s on. The real roadblock comes from those *glorious* economic indicators, and they’re still out there, lurking like wild animals in the brush, ready to rip apart any coherent narrative.

Critical economic data will come out before the Fed’s meeting

The Fed’s meeting on September 16th-17th will be the scene of the next big showdown. Powell and crew will have to decide whether to go full throttle and lower rates, or hold off and watch the train derail in slow motion. The dual mandate of the Fed is clear: price stability and full employment. But those two things-stable prices and a strong labor market-are like oil and water, constantly fighting it out in the economic ring.

They’ve been battling inflation for years now, hacking away at it with one of the most aggressive rate hikes in history. And guess what? It’s worked, kinda. Inflation, as measured by the Consumer Price Index, came in at a 2.7% year-over-year increase, and core inflation-sans food and energy-was a slightly more uncomfortable 3.1%. That’s down from the hellish days of 2022, but it’s still high enough to make Powell break a sweat.

On the other hand, we’ve got the labor market, which has shown signs of exhaustion. Only 73,000 jobs were added in July-nothing to write home about-and previous numbers have been revised down. It’s clear the jobs machine is slowing, but Powell’s been reluctant to go full throttle on the cuts, mainly because inflation’s still got its claws in the economy, and if it gets loose again, we could be staring down the barrel of stagflation-rising unemployment *and* rising prices. No one wants to see that trainwreck, especially not Powell, who’s already running out of good press clippings.

The July CPI report sent the market into a frenzy of optimism, but the Producer Price Index (PPI), which tracks wholesale inflation, came in hot-way hotter than expected, with a 0.9% month-over-month increase. This might be the first signs of a creeping inflationary tide fueled by lingering tariffs and supply chain issues. So, before the Fed meets, the August jobs report (Sept. 5) and CPI (Sept. 11) will have the potential to make or break the whole thing. If the jobs number comes in hotter than expected, or if inflation rears its ugly head again, the idea of a rate cut may go straight out the window.

The case for a rate cut right now hinges on the labor market. If it’s improving more than anticipated, there’s no urgency to cut. If inflation comes back with a vengeance? That’s even worse, because rate cuts push the economy into overdrive, and if inflation isn’t under control, all that’ll do is fan the flames. It’s like throwing gasoline on a bonfire and hoping it doesn’t blow up in your face.

Look beyond September

Powell’s not the type to surprise the market-he’s not running a carnival here-but don’t be fooled. It would take something wild-like a full-blown economic meltdown or a surprise act of God-to change the course for September at this point. Still, the market’s been living in a fantasy world for a while, convinced that at least five rate cuts are coming between now and 2026. This optimism, this reckless faith in a lower-rate utopia, has driven stocks higher this year, as a lower-rate environment tends to push stock prices into the stratosphere. But all that could come crashing down if the data doesn’t line up with those fairy-tale expectations.

Now, as we all know, the market is a twitchy creature. It has a nasty habit of changing its mind faster than a caffeinated squirrel. Since Powell’s Jackson Hole speech, the odds of a September rate cut have already started to decline. So, if you’re in it for the long haul, don’t panic just yet. But make no mistake-volatility’s on the horizon, and understanding the drivers of that volatility is going to be key to surviving the coming storm.

In the end, you don’t need to do anything drastic right now, but keep your eyes peeled. This is the kind of market where the unexpected is *always* around the corner, and if you’re not paying attention, you’ll get blindsided. And let me tell you, you *don’t* want to get blindsided in this game.

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2025-09-03 17:47