A surge in US producer prices and a spike in Treasury yields have cast doubt on the widely expected Federal Reserve rate cut in September. Despite this, the S&P 500 remains near its high and is banking on a cut. A 0.25% cut remains the most likely outcome, but it’s no longer guaranteed.
The stock market appears calm, with S&P 500 futures flat this morning. However, the bond market has seen a significant spike in yields, which suggests higher inflation is on the horizon. This implies that companies will have to pass on increased tariff costs to their customers, leading to potential price hikes.
The US producer prices rose 0.9% in July, exceeding expectations of 0.2%. This surge justifies Fed caution regarding rate cuts and highlights the impact of recent tariff policy on inflation. The Federal Reserve’s main weapon against inflation is keeping interest rates high.
Analysts from Convera and ING agree that a September rate cut is no longer guaranteed. A Deutsche Bank report notes that two Fed presidents have expressed skepticism about a 0.5% cut, and one has not made up his mind on a 0.25% cut. The bond market’s reaction suggests that investors are increasingly wary of the prospect of a rate cut.
If the expected rate cut doesn’t materialize, turmoil ahead is likely.
Source: https://fortune.com/2025/08/15/bond-market-september-cut-the-fed-not-locked-in