US Stock Market Eases from Peak as Investors Eye Inflation Data

The Dow Jones Industrial Average (DJIA) saw a slight dip on Monday, pulling back from the all-time high it reached last Friday. While investor confidence remains strong, the market’s initial excitement over a perceived dovish stance from Federal Reserve (Fed) Chair Jerome Powell is giving way to a more cautious mood. Investors are now turning their attention to this week’s key US inflation data.

At the recent Jackson Hole Economic Symposium, Powell’s speech was widely interpreted by markets as a signal for a potential interest rate cut as soon as September 17. Despite Powell’s emphasis on a data-dependent approach, many market participants viewed his comments as more favorable toward easing than they had anticipated. This sent global markets scrambling to increase their bets on a rate reduction.

Now that the dust has settled from the Jackson Hole event, traders are bracing for a crucial week of economic releases, including US Durable Goods Orders, Gross Domestic Product (GDP) growth, and, most importantly, the Personal Consumption Expenditure (PCE) price index, which is the Fed’s preferred measure of inflation. Markets are still betting that the Fed will prioritize the rapidly softening US labor market over near-term inflation when making its next rate decision.

However, a surprisingly high PCE inflation report could be a game-changer. Despite growing concerns that the job market is weakening faster than expected, a sharp increase in inflation would likely be enough to push Fed policymakers to continue their “wait-and-see” approach. This would delay any hard decisions on moving rates, a move that could disrupt current market expectations.