Navigating Economic Crosscurrents

The global capital markets have been largely optimistic over the past week, driven by growing confidence that the Federal Reserve will soon begin to cut interest rates. This sentiment has propelled U.S. equities to new record highs, with the S&P 500 and the Nasdaq reaching new peaks. The rally has been broad-based, with particular strength in the technology sector, fueled by ongoing optimism around artificial intelligence (AI).

Economic Data and the Fed's Path

The primary catalyst for this market enthusiasm has been a series of economic data releases that have reinforced the narrative of a cooling U.S. economy, giving the Fed the justification it needs to ease monetary policy.

On Thursday, September 11, the Bureau of Labor Statistics released the August Consumer Price Index (CPI) report, which showed that headline inflation rose 2.9% year-over-year, up from 2.7% in July.¹ While this reading is still above the Fed’s 2% target, the increase was largely anticipated by the market. Of note, the core CPI, which excludes volatile food and energy prices, held steady at 3.1% annually. The market's interpretation of this report was largely sanguine, as it came after the Producer Price Index (PPI) for August, released the previous day, showed an unexpected deceleration in wholesale prices.²

Further supporting the case for a rate cut, the weekly initial jobless claims report released on Thursday showed a significant and unexpected jump to 263,000 for the week ending September 6.³ This figure represents the highest level since October 2021 and adds to a growing body of evidence—including a downward revision of 911,000 jobs from April 2024 to March 2025—that the labor market is softening. This cooling labor market is a key factor the Fed has been monitoring, as it could signal a reduction in wage pressures and, subsequently, a dampening of inflation.

Looking Ahead: The September FOMC Meeting

With the September FOMC meeting concluding today, market participants are on high alert. Based on the recent economic data, the probability of a 25 basis point rate cut has risen sharply, with the closely watched CME Fedwatch tool now pricing in a greater than 90% chance of a cut.⁴ A rate cut would be the first since December, and would be seen as a pivot to a more accommodative monetary policy stance.  Market pundits are becoming optimistic for another cut before the end of the year.

Looking beyond the decision itself, investors will be closely dissecting Fed Chair Jerome Powell's press conference for clues on the future trajectory of interest rates. The market will be sensitive to any language that suggests a more aggressive easing cycle, which could further fuel the rally. Conversely, a more cautious or "hawkish" tone could temper expectations and potentially lead to a market pullback.

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Footnotes

¹ U.S. Bureau of Labor Statistics, "CONSUMER PRICE INDEX – AUGUST 2025," Release, September 11, 2025, https://www.bls.gov/news.release/pdf/cpi.pdf.
² U.S. Bureau of Labor Statistics, "PRODUCER PRICE INDEXES – AUGUST 2025," Release, September 10, 2025, https://www.bls.gov/news.release/pdf/ppi.pdf.
³ U.S. Department of Labor, "Unemployment Insurance Weekly Claims News Release," Release, September 11, 2025, https://www.dol.gov/ui/data.pdf.
⁴ CME Group, "CME FedWatch Tool," Accessed September 16, 2025, https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html.

Researched and compiled with the assistance of Gemini 2.5. This newsletter represents our general assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future performance or results. The opinions and statements expressed are intended for information purposes only, and do not constitute investment advice, a recommendation, or an offer or solicitation to purchase or sell any securities or investment strategies to any person in any jurisdiction in which an offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive, and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are as of September 17, 2025, and are subject to change without notice. Investing involves risks. Past performance is not a reliable indicator of current or future results, and index returns do not account for fees. It is not possible to invest directly in an index.

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