The ‘Fed put’ is back: If Tuesday’s inflation report is bad expect chaos in the markets

Finance·The ‘Fed put’ is back: If Tuesday’s inflation report is bad expect chaos in the By 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

Investors are optimistic the U.S

Federal Reserve will cut rates in September, in part because of President Trump’s appointment of Stephen Miran to the Fed

Stocks in Europe broadly held their gains in early trading

Why all the optimism? Because investors think the U.S

Federal Reserve will almost definitely cut interest rates in September, and they are hoping that the consumer price inflation report—due tomorrow—won’t show a significant rise in inflation

The “Fed put” is in full effect, according to JPMorgan: “We expect moderate weakening in the macro data but enough to trigger a mpt Fed response” in September, according to Fabio Bassi and his colleagues

Analyst consensus is that inflation will tick up 0.3% to 3%, according to ING, a small enough rise that the Fed will be able to ignore it in favor of cutting rates

The weak jobs report on August 1 was such a surprise that the central bank is now expected to ignore a small amount of inflation in favor of supporting the economy with a new dose of cheaper money. “Tomorrow’s US CPI report … could ve to be one of the larger events of the summer for ,” Jim Reid and his team at Deutsche Bank told clients this morning

If CPI goes up by 0.3% or less, “that is a number that can bably be seen as acceptable for the Federal Reserve to ceed with a September cut (90% priced in), given the backdrop of a significantly weaker jobs market,” ING’s Frantisek Taborsky and Francesco Pesole said in a note this morning

There’s one other reason investors are so confident that cut is coming next month: President Trump added Stephen Miran as a temporary Fed governor

They view him as having a single mission, to persuade the Federal Open Committee to lower rates and weaken the dollar. “Stephen Miran drew headlines earlier this year for posing a ‘Mar-a-Lago Accord’ to weaken the dollar and boost US exports

While the administration hasn’t formally embraced the idea, his appointment signals discomfort with dollar strength,” Convera’s George Vessey said in an this morning. “Miran’s stance firmly aligns with the dovish camp.” Of course, the reverse is true, too

If that inflation report comes in higher than expectations, then the spect of a September cut could disappear, which will ly cause some drama and selling tomorrow morning

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