Two weeks after the Federal Reserve delivered its first rate hike since 2023, markets face a run of data that will decide whether a second one arrives in October. The August PCE inflation report lands Wednesday and the September jobs report follows on Friday, bracketing a Micron earnings release that doubles as a stress test for the AI trade.
Traders spent the past week repricing how far the Fed might go. The FOMC voted unanimously on September 16 to lift the federal funds target by 25 basis points to 3.75% to 4.00%, citing persistent inflation and a strengthening economy, and left the door open to more. As of September 25, futures implied a 75.8% probability of another quarter-point increase at the October 28 meeting, with the policy rate priced near 4.2% by December and roughly 4.8% by September 2027. Four officials projected two further hikes this year.
Against that backdrop, U.S. stocks still managed their first weekly gain in three weeks, with AI-linked names leading again. Talks between Washington and Tehran over the Strait of Hormuz were the other swing factor, a thread that has fed directly into fuel prices and the Fed's inflation problem.
Wednesday Is the Pivot
The heaviest session comes midweek. At 8:15 a.m. ET on September 30, ADP publishes its September private payrolls estimate. Fifteen minutes later come August personal income and spending, the PCE price index, and the final revision of second-quarter GDP.
Consensus looks uncomfortable for anyone hoping the Fed is done. Headline PCE is forecast to rise 0.4% on the month, double July's 0.2%, holding the annual rate at 3.7%. Core PCE, the Fed's preferred gauge, is expected up 0.3% month over month, lifting the yearly pace to 3.4% from 3.3%. A print in line with that would mark core inflation moving further from the 2% target, not closer.
Not everyone expects the pressure to last. Fundstrat's Tom Lee argued this week that inflation could fall sharply over the next six months, which he said would give the Fed room to walk back its hawkish stance. He singled out housing as the component to watch. Wednesday's report will not settle that debate, but a soft shelter reading would give his camp something to point to.
Fed Governor Lisa Cook speaks later Wednesday afternoon, U.S. time, giving policymakers an early chance to react to the numbers.
Related: Diesel Shortage Pushes US Pump Prices Past $6 as Fed Weighs Another Hike
Micron: $50.8 Billion Expectations
After the bell the same day, Micron reports fiscal fourth-quarter results with expectations that would have looked absurd a year ago. Analysts see earnings of $31.45 a share, against $3.03 a year earlier, on revenue of about $50.8 billion versus $11.3 billion. Gross margin is forecast at 85.9%, up from 45.7%, and the Street is already looking for $35.07 a share next quarter. Options pricing implies a move of roughly 9% in either direction.
The memory maker has become a read-through for data-center spending, and the AI rally has been the main support for equities as rate expectations climbed. Chip stocks have carried that load all month, with AMD's run to a $1 trillion valuation the most visible example. A miss against numbers this high would test how much of that momentum is priced in.
Labor Data Closes the Week
Tuesday's JOLTS job openings for August and the Conference Board's September consumer confidence index set the tone early. Thursday brings weekly jobless claims and the ISM manufacturing index. Then on Friday, October 2, the September nonfarm payrolls report arrives at 8:30 a.m. ET, the last employment reading before the October FOMC.
Forecasts call for 100,000 new jobs, down from 162,000, with unemployment edging up to 4.2% from 4.1% and average hourly earnings rising 0.3%. Dallas Fed President Lorie Logan speaks later that morning.
Put together, the week offers a clear setup. Hot inflation and a firm labor market would validate the market's October hike pricing and push yields higher, a combination that hit crypto hard recently when bitcoin fell below $84,000 as yields hit their highest since 2007. Softer inflation paired with a weaker payrolls number would do the opposite, and would give risk assets their first real argument that the tightening cycle is close to its end.
FAQ
When is the August PCE inflation report released?
The Bureau of Economic Analysis publishes it on Wednesday, September 30, at 8:30 a.m. ET, alongside personal spending data and the final second-quarter GDP estimate.
What are the odds the Fed raises rates again in October?
Futures markets priced about a 75.8% chance of a 25 basis point hike at the October 28 meeting as of September 25, following the September 16 increase to 3.75% to 4.00%.
What is expected from the September jobs report?
Economists forecast 100,000 nonfarm payrolls, down from 162,000, with unemployment rising to 4.2% and average hourly earnings up 0.3%.
