The bond market is signalling that a September cut from the Fed is no longer locked in
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“After the PPI spike yesterday, there has been some hawkish repricing of Fed expectations,” ING told clients.
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August 15, 2025
10:45 AM
Fortune
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Economy·The bond market is signalling that a September cut from the Fed is no longer locked inBy Jim EdwardsBy Jim EdwardsExecutive Editor, Global NewsJim EdwardsExecutive Editor, Global NewsJim Edwards is the executive editor for global news at Fortune
He was previously the editor-in-chief of Insider's news division and the founding editor of Insider UK
His investigative journalism has changed the law in two U.S. federal districts and two states
Supreme Court cited his work on the death penalty in the concurrence to Baze v
Rees, the ruling on whether lethal injection is cruel or unusual
He also won the Neal award for an investigation of bribes and kickbacks on Madison Avenue.SEE FULL BIO A red flag in the bond market.Surging U.S. ducer prices and a spike in Treasury yields have cast some doubt on a widely expected Fed rate cut in September
The S&P 500 remains near its high, however, and is banking on a cut
While a 0.25% cut remains the most ly outcome, it no longer looks guaranteed
Globally, European and Asian equities are mixed
S&P 500 futures are flat this morning
In the stock market, it appears that all is calm, all is quiet: S&P 500 futures are flat this morning, premarket, and the index itself closed up marginally yesterday, near to its all-time high
The real drama is in the bond market
Both the 2-year Treasury and the 10-year Treasury saw their yields spike up yesterday after the ducer price index (PPI) report came in much higher than expected
Tariff-driven inflation may not yet have shown up in prices paid by consumers, but it looks it has now arrived at companies and manufacturers
The feeling on Wall Street is that this implies higher inflation is coming down the pipeline
Companies won’t be able to eat higher tariff prices forever
Sooner or later they’ll have to charge their customers. “Supply chains have become longer and more complex—trade taxes gress down supply chains over months, not days,” UBS warned this morning
All of a sudden, the U.S
Federal Reserve interest rate cut that everyone thought was guaranteed in September no longer looks locked in, as keeping interest rates high is the Fed’s main weapon to fight inflation. “U.S. ducer prices surged 0.9% m/m in July, far exceeding expectations of 0.2% and marking the largest monthly gain since June 2022
On an annual basis, PPI rose 3.3%, up from 2.4% in June, while core PPI jumped to 3.7% from 2.6%
The data shattered forecasts across the board, underscoring the inflationary impact of recent tariff policy and justifying Fed caution regarding rate cuts,” George Vessey of Convera told clients this morning
ING agreed. “After the PPI spike yesterday, there has been some hawkish repricing of Fed expectations,” Francesco Pesole said in a note seen by Fortune
In the bond market, which partially reflects future inflation expectations, the 2-year yield rose by 5.7 basis points to 3.73%, and the 10-year rose 5.1 points to 4.29%
It’s implication is that bond buyers think higher inflation is on its way. “This hotter-than-expected suggests that a September rate cut is far from guaranteed,” Jim Reid and his team at Deutsche Bank told clients this morning
He also noted that two Fed presidents said yesterday they would definitely not support a 0.5% cut, and one of them indicated he had not made up his mind on a 0.25% cut: “St
Louis Fed President Musalem stated it was ‘too early to say exactly what policy I will be able to support’ in September, and noted that a 50bp cut would be ‘unsupported by the current state of the economy and the outlook.’ “Similarly, San Francisco Fed President Daly told the Wall Street Journal she didn’t see the need for a 50bp cut either.” The context is that a September cut of 0.25% is still the favored expectation among investors
The CME Fed Funds futures market is still showing a 90%-plus chance of a 0.25% cut
And stock investors seem bullish on the notion that the Fed is poised to der a new dose of cheaper money in September
If that doesn’t happen—and the bond market is now hinting it’s less ly than it was—expect turmoil ahead
Here’s a snapshot of the action prior to the opening bell in New York: S&P 500 futures were marginally up this morning, premarket, after the index closed flat yesterday near its record high
STOXX Europe 600 was up 0.23% in early trading
The U.K.’s FTSE 100 was flat in early trading
Japan’s Nikkei 225 was up 1.71% to hit another record high
China’s CSI 300 was up 0.71%
The South Korea KOSPI was flat
India’s Nifty 50 was flat
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