US stock indices flew higher last night, led by a strong advance in tech stocks. This saw the S&P 500 and NASDAQ end the session up 1.1% and 2.2% respectively. The Dow and Russell 2000 lagged somewhat, with both closing 0.3% higher, but overall the tone was positive. The gains followed the latest update on US inflation with the release of the Consumer Price Index (CPI) for August. This was viewed as a key piece of data coming just one week before the Federal Reserve’s monetary policy meeting where the FOMC is expected to announce its first interest rate cut in over four years. Initially, the markets reacted negatively to the numbers. While Headline CPI (which includes food and energy) fell to 2.5% year-on-year from 2.9% previously, Core CPI was unchanged at 3.2%. More worryingly, there was a small uptick in the monthly data as inflation in the services side of the US economy, which includes shelter and transportation, remains very sticky. But the drop in the Headline number, which follows another benign reading from last month’s Core PCE (the Fed’s preferred inflation measure) clears the way for a rate cut next week. As to the size of that cut, the CME’s FedWatch Tool now assigns an 87% probability of 25 basis points, up from 66% earlier this week and 50% a month ago. The odds now favour a total of 100 basis points-worth of cuts between now and the year-end, with 125 basis points now less likely. Amid all the rate cut talk, it’s worth remembering that the Federal Reserve continues to run down its balance sheet, and thereby quietly tightens monetary policy. Could the Fed announce that this policy will now cease, seeing as it runs in opposition to rate cuts? US stock index futures are firmer across the board this morning, and the bulls have a spring in their step. The S&P is just 100 points shy of its record high and the bulls seem determined to take this out as soon as they can. If they do, then the big question is: what then?