Consumer inflation and the outcome of the European Central Bank's rates meeting could both be market movers Thursday, ahead of the Fed's meeting next week.
The consumer price index is released at 8:30 a.m. Thursday and is expected to show a subdued rise in inflation in August, with CPI up 0.1%, or 1.8% year-over-year, according to Refinitiv. Core CPI inflation is expected to rise by 0.2%, or 2.3% year over year.
The Fed is expected to cut its fed funds rate by a quarter point next Wednesday. If CPI is much weaker or stronger, it could impact market expectations for the Fed though economists say the data is unlikely to impact the Fed's decision.
But more important to global financial markets will be whether the ECB decides to trim already negative interest rates or embark on more quantitative easing. Traders had been expecting the ECB to announce a new quantitative easing program, but expectations have been pared back as more hawkish officials downplayed policy easing.
The speculation now is that the ECB will announce less in its 7:45 a.m. ET statement, and wait for IMF managing director Christine Lagarde to take the helm of the central bank. Outgoing ECB President Mario Draghi oversees his final meeting Thursday, and he was expected to want to drive home a final round of easing to help boost Europe's sagging economy and stimulate inflation.
"Everyone is waiting for the ECB," said Andrew Brenner of National Alliance, noting that there is opposition on the central bank to a big easing package from Germany and others. "I think Draghi wants to bring quantitative easing back. Do they come with it and it starts Nov. 1 when Christine Largarde comes in, or do they wait to start it Jan. 1?"
Brenner said the market is pricing about 15 basis points of easing onto an already negative 0.40% rate. Traders have said the ECB's posture could influence the Fed, whether it is either dovish or hawkish, meaning less willing to loosen policy.
As for the CPI, Bank of America Merrill Lynch economists expect to see core inflation rise by 0.3% for the month, or 2.4% on a year-over-year basis, an increase from July's 2.2%.
"On balance, we do think core inflation should show decent strength in August," said Joseph Song, an economist with Bank of America Merrill Lynch. "Part of the story is we think apparel is going to be a decent contributor to core inflation this month."
If inflation is in line with expectations, it would have little bearing on the Fed, which is expecting a slow pace of inflation. But the Fed has also signaled it would not be concerned if inflation exceeds its 2% target.