August 29, 2025 — New York
U.S. financial markets remained buoyant on Thursday, with major indices hovering near all-time highs as investors assessed the Federal Reserve’s next move on interest rates amid mounting speculation over a possible rate cut later this year. With the July Personal Consumption Expenditures (PCE) inflation data due Friday, markets are poised for potential volatility depending on whether inflationary pressures show signs of abating—or persist above the Fed’s 2% target.
Focus on Core PCE and Trade Data
The July PCE data, widely considered the Fed’s preferred gauge of inflation, will be a crucial input in determining monetary policy trajectory. Economists expect the headline PCE to cool modestly, but the core measure—which strips out volatile food and energy prices—is forecast to tick up to 2.9%, a development that could complicate the Fed’s decision-making process.
“We’re walking a tightrope here,” said Rachel Lin, senior economist at MarketView Analytics. “A rise in core PCE suggests inflation is still sticky, particularly in services, and that may keep the Fed cautious despite strong pressure from markets to begin easing.”
Trade figures for July, also expected Friday, will shed light on external demand and supply chain resilience—both critical in assessing economic momentum and inflation drivers.
Fed Officials Signal Divergence in Views
Adding to the complexity, recent comments from Federal Reserve officials have signaled a growing divergence in policy perspectives.
Fed Governor Christopher Waller, a known dovish voice on the Federal Open Market Committee (FOMC), reiterated his support this week for beginning a rate cut cycle, citing declining inflation trends and stable GDP growth. Waller acknowledged that economic growth remains resilient, with Q2 GDP expanding at an annualized rate of 2.6% and unemployment holding near historic lows at 3.8%. However, he emphasized the importance of adjusting rates in a “measured and proactive” manner to avoid overtightening.
“If inflation continues its downward trend while employment remains robust, it’s entirely reasonable to begin thinking about easing,” Waller said during remarks at a monetary policy conference on Tuesday.
Markets have priced in a roughly 58% probability of a rate cut at the Fed’s November meeting, according to CME’s FedWatch tool.
Legal Tensions Emerge at the Fed
Meanwhile, in an unusual legal development, Federal Reserve Governor Lisa Cook has filed a lawsuit aimed at protecting her independence, following what sources describe as an “unlawful and politically motivated attempt” to remove her from her post.
Details of the suit, filed in federal court on Wednesday, remain under seal, but insiders say the legal challenge stems from internal efforts to sideline or pressure Cook over her policy stances and public comments.
Cook, appointed by President Biden and confirmed in 2022, is one of the few Black women to have served on the Fed’s board. She has advocated for a cautious approach to monetary policy, emphasizing economic inclusion and the disparate impact of inflation and interest rates on marginalized communities.
A spokesperson for the Federal Reserve declined to comment, citing ongoing legal proceedings, but stressed the central bank’s commitment to the independence and integrity of its officials.
Market Outlook
The S&P 500 and Nasdaq Composite both closed marginally lower Thursday but remain within striking distance of record highs. Investor sentiment remains optimistic, but data-driven.
“The market is clearly banking on a Fed pivot,” said Dana Martinez, equity strategist at Franklin Ridge. “But with inflation not yet decisively under control, and now legal drama in the Fed’s leadership, there’s plenty of room for surprise.”
All eyes will now turn to Friday’s PCE release, which could either affirm market expectations—or throw the Fed’s path back into doubt.