While the market’s been after a rate cut for months now, the Fed hasn’t budged — yet — because it’s been watching the data.
And the latest batch is painting a pretty mixed picture ahead of next week’s FOMC meeting.
Let’s start with inflation: August’s Consumer Price Index (CPI) showed core prices (excluding food and energy) rose 3.1% year over year. No surprises there.
Month over month, inflation ticked up 0.3%. Again, nothing wild, but also not cooling.
So, inflation isn’t running hotter than expected. That’s good.
But it’s not cooling any further either. That’s not great.
It’s just … stuck. And in Fed-speak, “sticky” inflation means, “We’re not rushing into anything.”
But then came the other shoe: jobless claims.
Last week, 263,000 Americans filed for unemployment benefits, the most we’ve seen since October 2021.
That’s a big jump. The kind snaps central bankers to attention.
What’s a trader to do?
I have a few ideas.
Don’t Get Too Comfortable
A few weeks ago, the big question was if the Fed would cut rates. Now it’s more about how much.
You’ve got two forces pushing in opposite directions.
Inflation isn’t coming down fast enough to justify an aggressive rate cut.
But rising jobless claims are a flashing yellow light that says, “Caution. Things might be slowing down faster than we thought.”
How does the Fed respond?
They split the difference.
Markets still expect a rate cut next week. But hopes of a big, bold cut are likely off the table, at least for now.
The more realistic expectation is a modest quarter-point cut, paired with more “wait and see” language from Fed Chair Powell.
This is where you, as a trader, need to get sharper: not more aggressive, just more focused.
A Sticky Situation
Rate cuts don’t always send the market soaring. It depends why they’re cutting.
If it’s to boost growth in a strong economy, the bulls can run. But if it’s a sign the Fed is getting nervous, the tone shifts real quick.
Right now, it’s a mixed bag.
Sticky inflation says the economy is still running hot in spots. Rising jobless claims say parts of it are cooling off faster than expected.
That’s not a great combination.
You can already see it in how the markets are behaving — tech names have been chopping sideways, small caps are jittery, and the bond market is flashing signals of caution with yields sliding.
This is the kind of setup where false breakouts and fake-outs are everywhere.
So how do you trade this?
You don’t guess the Fed. You prepare for both outcomes.
If Powell delivers the expected 25-basis-point cut with cautious language, we might get a small relief rally.
But if he hints that inflation is still too sticky, or that the labor market data is “transitory” (they love that word), expect volatility. A lot of it.
But if the Fed surprises with a 50-basis point cut? That’s not bullish. That’s panic mode.
That’s “we’re behind the curve” energy. And markets will likely sell off first before recalibrating.
The bottom line is this: Next week isn’t about direction. It’s about reaction.
The smart money won’t just trade the cut, they’ll trade the tone.
So whether you’re long, short, or sitting in cash, don’t get caught flat-footed.
Watch the numbers, but more importantly, watch the reaction.
That’s where the edge is.
Stay street smart,
Jeff Zananiri
P.S. Want to see real trades, in real time? Today at 4 p.m. ET, Danny Phee is walking through exactly how he’s attacking this market — what he’s trading, why he’s trading it, and how he’s staying ahead of the crowd.
Show up, dial in, and see how the pros get it done.
*Past performance does not indicate future results
