Good morning! Retail sales data for August will release at 8:15 a.m. ET, marking the final key data release before we witness the Fed’s first rate cut in four years on Wednesday.

Huge couple days ahead — let's dive in.

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Inflation chatter is cooling with inflation

Priorities continue to shift for the biggest companies in the US.

In the second quarter, the number of S&P 500 names mentioning “inflation” on an earnings call declined 21% compared to a year ago, according to FactSet. Compared to the same quarter in 2022 — when inflation peaked at a historic 9% — company mentions are down 42%.

In total, 235 companies cited the term in the most recent quarter, marking the second-lowest number in three years. 

As the chart from FactSet illustrates, the drop in chatter has tracked the annualized inflation rate, which has cooled for five months in a row to hit 2.5% in August.

While this isn’t a perfect indicator, it does signal that Wall Street’s concerns around high prices are tempering. 

This trend also mirrors how the Federal Reserve has moved inflation lower on its priority list over recent months. 

As policymakers ready their first cut in four years, it’s no secret that they are now focused on the labor market more than price stability.

Jerome Powell & Co. have said as much, and a slate of recent data have backed up that thinking. 

The unemployment rate hovers at 4.2% and job growth has slowed more than anticipated, particularly when factoring in the government’s steep data revisions.

All this has teed up a rate cut for Wednesday but uncertainty remains high.

As of Tuesday at 5 a.m. ET, markets see 67% odds for a jumbo 50-basis-point cut, CME data shows.

Those odds have more than doubled since one week ago even though we haven’t seen any new economic data.

“We sense markets may be pushing the pricing for tomorrow’s FOMC rate cut closer to 50bp in an attempt to influence the Fed decision, which is likely to be a very close one,” wrote ING economists in a note this morning.

The ING team does narrowly favor a quarter-point move, though they acknowledged it’s possible that the market will influence the Fed into taking a bigger swing.

Generally, the Fed does not act on a whim. Since the 2008 financial crisis, policymakers have made a point to avoid surprises.

That’s what makes Wednesday’s decision so unusual. Whether the central bank announces a small or big rate cut will deliver some degree of shock.

“Fed Chair Powell has his work cut out for him at this week’s post-meeting press conference if he doesn’t want to spook markets or look out of touch with their views of current economic conditions,” said DataTrek Research co-founders Nicholas Colas and Jessica Rabe.

Thoughts or feedback? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

📊 The Dow hit a new record high. A 6% rally for Intel stock helped fuel those gains. Other tech names including Apple moved lower, though, dragging the tech-heavy Nasdaq Composite down 0.5%. Notably, the S&P 500’s equal-weighted index hit an all-time high. (Yahoo Finance)

🎌Don’t forget the Bank of Japan. The Fed isn’t the only central bank plotting its next move. Japanese policymakers could surprise markets with an interest-rate increase at its next meeting on September 20. No move is expected, but there’s not exactly certaintyn. Either way, more volatility could hit global markets. (Barron’s)

📉 Shares of Tupperware Brands crashed 50%. The company is preparing to file bankruptcy after a multi-year effort to revive the business. It’s been struggling to manage over $700 million in debt, and executives have cautioned for years that things could quickly go belly-up. (Bloomberg)

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