Investors Await Fed's Verdict on Rate Cuts Amid Growth and Inflation Tensions

Stock index futures showed minimal movement ahead of Federal Reserve Chair Jerome Powell's upcoming speech and key economic data releases, reflecting a market in wait-and-see mode. December S&P 500 E-Mini futures (ESZ25) dipped 0.04%, while December Nasdaq 100 E-Mini futures (NQZ25) fell 0.06% as of the latest data. The S&P 500 and Nasdaq 100 had closed at record highs in the prior session, but investors remained cautious ahead of Powell's remarks and U.S. purchasing managers' index (PMI) data. U.S. rate futures priced in an 89.8% probability of a 25-basis-point rate cut at the next FOMC meeting in October, according to market data.

The Federal Reserve's internal debate over the pace of rate cuts highlighted diverging views among policymakers. Fed Governor Stephen Miran argued for aggressive reductions to protect the labor market, while St. Louis Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic emphasized caution amid inflation risks. Cleveland Fed President Beth Hammack reiterated a focus on inflation, warning against overstimulation from rapid easing. These mixed signals underscored the challenge of balancing growth support with price stability, particularly as the U.S. economy expanded at a revised 1.8% annualized rate in 2025, per the OECD.

Global economic projections also influenced the outlook. The OECD revised its U.S. growth forecast upward to 1.8% for 2025, with expectations of 1.5% in 2026, while global growth is now projected at 3.2% this year and 2.9% next year. These updates, though modest, suggested a slower-than-anticipated slowdown, potentially easing pressure for aggressive Fed intervention. Meanwhile, the Eurozone's Composite PMI rose to 51.2 in September, outpacing expectations, though manufacturing activity contracted.

Powell's speech at the Greater Providence Chamber of Commerce was anticipated to reinforce his prior stance, with TD Securities' Oscar Munoz noting, "We do not expect Powell to change his tone from his FOMC press conference". This expectation aligned with the market's current pricing of a September rate cut at 69.5% and a delayed October cut at 30.5%. Analysts interpreted Powell's likely neutrality as a signal that the Fed would maintain its data-dependent approach, avoiding abrupt policy shifts.

Investors will closely monitor preliminary U.S. PMI data later in the week, with economists forecasting a Manufacturing PMI of 52.2 and a Services PMI of 54.0. These figures could provide further insight into economic momentum ahead of the October FOMC meeting. In the bond market, the 10-year Treasury yield settled at 4.127%, reflecting cautious positioning.

The subdued futures action underscored a broader market preference for liquidity preservation as central bank communication and economic data dominated near-term focus. With Powell expected to reiterate the Fed's commitment to a measured approach, investors remain attuned to signs of inflationary pressures or labor market softness that could influence the trajectory of rate cuts.

Source: [1] S&P 500 and Nasdaq 100: Futures Steady as Fed Minutes and Powell's Speech Loom (https://www.fxempire.com/forecasts/article/sp-500-and-nasdaq-100-futures-steady-as-fed-minutes-and-powells-speech-loom-1455423)

[2] Stock Index Futures Muted Ahead of U.S. PMI Data and Powell's Speech (https://www.barchart.com/story/news/34972856/stock-index-futures-muted-ahead-of-u-s-pmi-data-and-powells-speech:~:text=December%20S%26P%20500%20E-Mini%20futures%20%28ESZ25%29%20are%20down,Chair%20Jerome%20Powell%20and%20U.S.%20business%20activity%20data)