While the market was still immersed in the optimistic atmosphere of a Fed rate cut in September, a piece of data released before the U.S. stock market opening overnight finally detonated the "time bomb" of tariffs' impact on inflation—the U.S. July Producer Price Index (PPI), a leading indicator of inflation, rebounded significantly beyond expectations.

Before the U.S. stock market opened on Thursday local time, data released by the U.S. Bureau of Labor Statistics showed that the July Producer Price Index (PPI) rebounded more than expected. Specifically, the U.S. July PPI rose 0.9% month-on-month, 0.7 percentage points higher than the market expectation of 0.2%, marking the largest monthly increase since June 2022. The year-on-year growth rate reached 3.3%, significantly higher than the expected 2.5%, the fastest pace since February.

Once the news broke, market confidence in a Fed rate cut in September wavered. According to CME's "FedWatch," investors' bets on a 25-basis-point rate cut in September have retreated from over 95% yesterday to 92%.

Additionally, Fed officials have successively "poured cold water" on the market's high expectations for rate cuts.

St. Louis Fed President Alberto Musalem said it was too early to conclude whether to cut rates at next month's meeting, stating, "For me, it's still too early to clearly articulate what policy stance I would support at the September meeting."

Fed's Daly opposed the necessity of a 50-basis-point rate cut at the September meeting. She said, "Fifty basis points seems to me like we’re facing an emergency—I worry that would send a signal of urgency that I don’t think is justified by the momentum in the labor market. I don’t see a reason to 'catch up.'"

However, she later stated that she would support a September rate cut, considering that inflationary pressures were not as strong as expected and the labor market had softened.

Amid these complex factors, the market is now focused on Fed Chair Jerome Powell's upcoming speech at the Jackson Hole symposium.

According to the Fed's schedule, Powell will deliver a speech on the economic outlook and the Fed's policy framework review at the Kansas City Fed's annual central banking conference in Jackson Hole, Wyoming, at 10 a.m. ET on August 22.