Markets Rally on Inflation Data

Stock indexes climb to records on cooler inflation, fueling bets that the Fed will ease policy soon.

Markets Rally as Inflation Slows Boosting Rate Cut Bets

NEW YORK reports show the U.S. stock market pushing to new highs after inflation data for July came in cooler than expected. The S&P 500 rose 1.1 percent to a fresh record, the Dow gained about 483 points and the Nasdaq climbed 1.4 percent to its own peak. Investors priced in a higher likelihood of a Federal Reserve rate cut at the September meeting, with futures markets placing roughly a 94 percent chance of a move in rates. Traders expect lower borrowing costs to sustain growth by supporting housing, autos and equipment spending.

The inflation print came in at 2.7 percent year over year, unchanged from June and below the 2.8 percent forecast, helping to lift sentiment that policy relief might be on the way. Yet analysts note that a core or underlying inflation gauge has risen to its highest level this year, complicating the path for the central bank. Officials have signaled they want more confirming data before acting. The report also highlights a political and global backdrop, including tariff policy that could reheat inflation later, limiting the Fed adopt a rapid easing pace. Corporate moves reflected mixed signals: Intel rose after positive remarks from the administration, while Circle Internet Group posted a larger loss than expected despite revenue growth. Some stocks still faced pressure as traders weighed growth prospects against higher input costs and tempered earnings expectations.

The market is modeling a delicate balance between inflation resilience and policy ease. A cooler headline inflation print gives the Fed room to consider a rate cut, but a stubborn core measure keeps the central bank cautious. Political pressure and tariff tensions add another layer of uncertainty, risking a quicker inflation reaction than the headline suggests. If investors misread the data or if incoming reports surprise on wages or services inflation, market volatility could return quickly. Long term, valuations may face pressure if rate cuts fail to translate into stronger growth or if earnings growth stalls in a weaker demand environment.

Highlights

The road ahead will test how well markets price policy risk into growth expectations