The Japanese investment firm also reduced its price consumption expenditure (PCE) index forecast for July to 0.243% from 0.325% due to anticipated softness in prescription drugs and software.
Following the release of the July consumer price inflation (CPI) data, Nomura has reportedly brought forward its timeline for the next interest rate cut to September.
On Tuesday, the Bureau of Labor Statistics released the July CPI data, which showed the monthly inflation rate ticking down 0.1 points to 0.2%. The annual rate came in at a tamer-than-expected 2.7%.
The monthly and annual rates of core consumer prices, which exclude food and energy prices, accelerated to 0.3% and 3.1%, respectively, from 0.2% and 2.9%. The rates, however, aligned with expectations.
A Reuters report stated that Nomura now expects two additional rate cuts after September, forecasting a 25-basis-point reduction each in December and March 2026. But the firm does not see scope for a 50-basis-point cut, saying, “The labor market is slowing, but there are few signs of stress, and broader financial conditions remain easy.”
The Japanese investment firm also reduced its price consumption expenditure (PCE) index forecast for July to 0.243% from 0.325% due to anticipated softness in prescription drugs and software. The PCE index, the Fed’s preferred inflation gauge, will be released as part of the Bureau of Economic Analysis’ personal income and spending report on Aug. 29.
The rising rate cut hopes sent the broader market, as well as the tech sector, into record territory on Tuesday.
The Invesco QQQ Trust (QQQ), an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index, and the SPDR S&P 500 ETF (SPY) are up 13.76% and 10.31%, respectively, for the year. The QQQ and SPY ETFs were among the top 10 active equity tickers on Stocktwits as of late Tuesday, with sentiment readings of ‘bullish’ and ‘neutral,’ respectively.
The futures market prices in a 94.4% probability of a quarter-point cut in September, according to the CME FedWatch Tool. Traders have begun discounting a 60.5% probability of a 25bps cut in November.
Last week, JPMorgan also stated that it expects the U.S. Federal Reserve to lower interest rates by 25 basis points in September.
The Federal Reserve, under Chair Jerome Powell, will have access to one more inflation and jobs report each before the rate-setting committee — the Federal Open Market Committee — meets to discuss rates.
Two members dissented at the July meeting, and with another pro-Trump Federal Reserve board member joining after Adriana Kuglar’s resignation, there could be increasing pressure on the committee to assume a dovish stance.
Powell, meanwhile, has resisted political pressure to take the Fed funds lower as he deemed it fit to “wait-and-watch” before the full impact of tariffs is known.
Launching a scathing attack on Powell for his intransigence, President Donald Trump said in a post on Tuesday, calling on the central bank chief to lower rates yet again.
“Fortunately, the economy is sooo good that we’ve blown through Powell and the complacent Board,” Trump wrote, adding that he was considering a major lawsuit against Powell due to the “horrible, and grossly incompetent, job he has done in managing the construction of the Fed Buildings.”
The next FOMC meeting has been scheduled for Sept. 16-17, with the updated Summary of Economic Projections (SEP) and dot-plot forecast also due along with the post-meeting policy statement.
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