What if the Federal Reserve announces that the cut begins in September

It is widely expected that the Federal Reserve will keep interest rates steady at its scheduled meeting on July 29-30, but markets are closely watching for any shift towards easing that may signal a rate cut in September, according to Yardeni Research.

Yardeni added, citing data from the CME FedWatch tool. "The odds of a rate cut by the Federal Reserve at the Federal Open Market Committee meeting on July 29-30 have fallen to 4.7%."

Strong job data for June, with the addition of 147,000 jobs and a drop in unemployment to 4.1%, has pushed back expectations of an imminent move.

However, a series of softer inflation readings may drive the Federal Reserve towards easing.

"The latest set of weaker-than-expected inflation reports, including the decline in the expected inflation series for July, may persuade Federal Reserve Chairman Jerome Powell and his colleagues to signal that they are leaning towards a federal funds rate cut at the September 16-17 meeting," Yardeni wrote.

According to the firm, a more dovish tone next week could boost stock markets, which are already benefiting from the momentum generated by better-than-expected second-quarter earnings.