Investors to pore over inflation data for signals on rate trajectory

NEW YORK, Sept 4 (Reuters) - Investors will zero in on inflation data next week that they say could determine whether the U.S. Federal Reserve hikes interest rates later in the month.

After dropping on Friday, the benchmark S&P 500 ended the week with a slim gain and was about 1% shy of ‌its mid-August record high. Equities were jostled by changes in rate-path expectations and concerns that rising U.S. Treasury yields could trip up Wall Street's rally.

Markets have been consumed ‌in recent weeks by the prospects of a rate increase at the Fed's next meeting on September 15 to 16. Such bets ramped up after a speech late last month from Fed Chairman Kevin Warsh that signaled the central bank ​might have to act if inflation remains high, and the case for a hike built on Friday after a strong labor market report. But the potential for such a rate move remained up in the air.

That uncertainty left investors bracing for volatility tied to the monthly Consumer Price Index report, due on September 11. The report is Wall Street's most closely watched inflation gauge.

Fed officials "have spent recent months underscoring their commitment to price stability, and at some point, that rhetoric will need to be backed by action if inflation fails to show sufficient progress," said Sid Vaidya, chief investment strategist at ‌TD Wealth.

"CPI will certainly move the needle one way or the ⁠other ... so there is a lot riding on this report."

The S&P 500 has gained nearly 13% in 2026, underpinned by an exceptionally strong year for corporate profits. But investors have braced for a potential pullback in September, which historically is the weakest month of the year for U.S. stocks.

With ⁠the second-quarter reporting season ending, investors are wary of other factors clouding the outlook for equities such as bond market anxiety or newly inflamed Middle East tensions.

Data on producer prices will give investors an initial glimpse at August's inflation trends during the holiday-shortened week, with U.S. markets closed on Monday for Labor Day.

Thursday's Producer Price Index report comes a day ahead of the CPI data. ​Economists ​polled by Reuters expect a 0.4% monthly rise in August CPI, and a 0.2% rise in the core ​measure, which excludes the volatile food and energy components.

Inflation has for several ‌years run consistently above the Fed's 2% annual target. But the prior month's CPI reading showed prices barely increased.

With the upcoming CPI, "what really matters is whether that print really confirms the cooling that we saw in June and July," said Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions. "It does kind of come down to one print, in that sense."