The stock market rally in the U.S. stumbled on reduced expectations of a Federal Reserve rate cut at the September central bank meeting. Why is this happening, and will the central bank really not cut rates?

As I mentioned earlier, unexpectedly strong producer price index (PPI) data — particularly the services component, which rose unexpectedly and now represents the overwhelming share of the U.S. economy — led investors to realize that the Fed may not lower rates in September. This market reaction came as a surprise since, for the past 15 years, market participants had practically ignored producer inflation figures, given that the U.S. has a very small real industrial sector, while the services sector has historically performed reasonably well, even during the 2008–09 mortgage crisis or the COVID-19 pandemic.

And now, despite the stabilization of the consumer price index (CPI) and a sharp slowdown in new job growth in the labor market, the near-100% expectation of a rate cut has wavered. Investors began to doubt that the Fed, and Chair Jerome Powell personally, would abandon the decades-old inflation-targeting model, which centers on the mantra of bringing inflation down to 2%.

Recently, however, this very model has been openly criticized by Treasury Secretary S. Bessent, who believes that the key rate is 1% higher than what the national economy requires. At present, the rate stands at 4.5%, which he argues is overly restrictive and should be at 3.5%.

Criticism of the Fed's position from such a senior official is a strong argument. It is also supported by President Donald Trump, who has repeatedly pressured Powell in the past to allow the real sector to breathe by cutting rates and stimulating economic growth.

The market listens to both senior officials and Powell himself. Despite the adjustment in expectations for rate cuts — down from almost 100% before the PPI release to the current 84.9% — this is still a very high probability. Against this backdrop, today's release of the Fed minutes is in the spotlight, as traders will be looking for signs of a lack of consensus within the Fed about maintaining current rate levels. This possibility is indirectly supported by comments from two Fed members, M. Bowman and C. Waller, who recently stated that they had favored a 0.25% cut rather than keeping rates unchanged.

All of the above suggests that the Fed may indeed cut rates in September, although this remains a subject of debate.

What to expect in the markets today?

I believe that overall consolidation will persist. Stock indices will edge lower after reaching new highs, while gold and oil prices will move sideways. The cryptocurrency market, along with the U.S. dollar in Forex, will remain in a broad sideways range.

A positive market reaction should be expected today if the Fed minutes reveal a growing number of policymakers leaning toward cutting rates rather than holding them steady.

Daily forecast:

#USDX

The dollar index is holding below 98.40. Any hint in the Fed minutes of upcoming rate cuts will pressure the index, pushing it down toward 97.60. In that case, selling is justified, with 98.20 serving as an entry level.

Ethereum

The cryptocurrency is showing a local upward reversal amid hopes that the Fed will be forced to cut rates in September — something today's Fed minutes may confirm. With this in mind, growth toward 4532.00 can be expected. A level around 4224.17 may serve as a buying point.