Traders Brush Off Inflation Risk as They Bet on Smooth Rate Path

Now that a September rate cut is all but sealed, options pros are expecting smooth sailing in the stock market through Thursday’s consumer price index reading. But that could turn out to be a dangerous bet if it shows inflation starting to run hot.

The logic behind the expectations for a rate cut at the Federal Reserve’s Sept. 16-17 policy meeting is pretty simple. Job growth is stagnating in the US, so the economy could use a jolt. That was reinforced on Friday, when disappointing August employment figures and the highest unemployment rate since 2021 led investors to fully price in a quarter-point reduction from the Fed next week.