Inflation Data to Test Rate Hike Odds Ahead of Fed Meeting

The US stock market is bracing for this week's inflation data release, as investors weigh the potential impact on interest rates. The Federal Reserve's decision to raise or keep interest rates steady at its September meeting hangs in balance.

The S&P 500 index slipped on Friday but still ended the week with a modest gain, remaining about 1% below its record high reached in mid-August.

Expectations for a rate hike have shifted sharply in recent sessions. On Thursday, rate-hike bets declined after Fed Governor Christopher Waller indicated that he would favour keeping interest rates unchanged if upcoming data confirmed that inflationary pressures were easing.

However, those expectations reversed on Friday after labour market data showed that US employment increased by 162,000 jobs in August, almost three times the market forecast. Fed funds futures late on Friday implied a 57% probability of a rate hike at the Fed's next meeting.

The upcoming inflation data will be closely watched, particularly the Consumer Price Index report due on September 11. A stronger-than-expected reading could reinforce expectations for a September rate hike, while softer data could weaken the case for tighter monetary policy and provide some relief for equities.