Markets brace for Fed rate cut as inflation data near 0.3% triggers 90% cut odds

Financial markets are on edge as they await Tuesday’s U.S. inflation report, with expectations that a weaker-than-expected reading could prompt an aggressive Fed rate cut in September. This scenario has led to the resurgence of the so-called “Fed put,” a term used to describe the Fed’s history of easing policy to support markets during economic uncertainty [1]. Investors are pricing in a 90% chance of a rate cut if the inflation data remains at or below 0.3%, according to ING analysts. However, if the data exceeds this threshold, the market could face significant turbulence [1].

Global equity markets have shown mixed activity ahead of the report. S&P 500 futures were flat in the premarket, following the index’s record close on Friday. Asia’s Nikkei 225 hit another all-time high, rising 1.85%, while European indices held steady early in the session. In the U.S., Bitcoin climbed to $121.6K, and Treasury yields remained in focus as traders weighed inflation risks against the possibility of easing monetary policy [1].

The Fed’s potential move is seen as a response to a weak labor market and broader economic slowdown. A disappointing jobs report earlier in the week triggered a sharp drop in mortgage rates and reinforced the narrative that the economy is cooling [2]. JPMorgan analysts have noted that they expect “moderate weakening” in macroeconomic data but anticipate a swift Fed reaction in the form of a rate cut [1]. Deutsche Bank analysts also warned that Tuesday’s consumer price index (CPI) report could be a pivotal event for markets over the summer [1].

The appointment of Stephen Miran as a temporary Fed governor has further fueled expectations of a dovish stance. Miran is seen as a strong proponent of rate cuts and weaker dollar policies, having previously proposed the “Mar-a-Lago Accord” to boost U.S. exports. His presence on the Federal Open Market Committee is interpreted as a signal from the Trump administration that it favors accommodative monetary policy [1]. Convera’s George Vessey noted that Miran’s appointment “clearly signals discomfort with dollar strength,” reinforcing the expectation of a September rate cut [1].

Analysts are divided on how the Fed will balance its dual mandate of controlling inflation and supporting employment. While a modest rise in inflation—projected at around 0.3%—is considered manageable, a more significant increase could force the Fed into a difficult position. If inflation remains stubbornly high, the central bank may need to choose between allowing it to run hot or tightening further, potentially triggering a recession [1].

The U.S. dollar is under pressure ahead of the report, with traders bracing for potential shifts in monetary policy. If the data supports rate cuts, the dollar could weaken further, with broader implications for global trade and capital flows. However, the upcoming U.S.-China tariff deadline adds another layer of uncertainty, with some analysts noting that tariffs have already contributed to higher 10-year Treasury yields and tighter financial conditions [5].

As the market awaits the data, the “Fed put” appears to be back in play, though its effectiveness in today’s economic climate remains untested. Traders are advised to prepare for sharp moves in both equities and bonds, depending on whether the data confirms fears of a slowdown or suggests that inflation remains under control [1].

Source: [1] [https://fortune.com/2025/08/11/fed-put-inflation-stock-market/](https://fortune.com/2025/08/11/fed-put-inflation-stock-market/)

[2] [https://www.cbs17.com/news/national-news/weekly-mortgage-rates-plunge-after-bad-jobs-report/](https://www.cbs17.com/news/national-news/weekly-mortgage-rates-plunge-after-bad-jobs-report/)

[5] [https://www.nst.com.my/business/economy/2025/08/1258325/dollar-steady-inflation-report-us-china-tariff-deadline](https://www.nst.com.my/business/economy/2025/08/1258325/dollar-steady-inflation-report-us-china-tariff-deadline)