The selloff in equity markets took a pause on Wednesday but investors are still cautious ahead of the Q2 GDP revision and PCE price index which is due out on Friday. The revision to the GDP is expected to be an improvement but that could be overly optimistic given the decline in the Index of Leading Indicators. The Index of Leading Indicators declined for the 4th consecutive month suggesting economic contraction continued into the 3rd quarter as well.

The news of the week will be the PCE price index, however, when it is released on Friday. The economists are expecting the pace of consumer level inflation to abate but there is risk in the outlook. Even so, the annualized pace of inflation is expected to remain high, near record levels, and well above the FOMC's target rate of 2.0%. In this scenario, it will take a much-better-than-expected figure to take interest rate hikes off the table and that is unlikely to happen. Investors should be prepared for at least a 50 basis point rate hike at the next FOMC meeting.