US inflation steady lifts markets

Inflation stays at 2.7 percent in July, boosting bets on a Fed rate cut and sending major indices to new records.

Inflation steady lifts US stocks to fresh highs

US stocks closed higher on Tuesday after the July inflation rate stayed at 2.7 percent, according to the Bureau of Labor Statistics. The S&P 500 rose 72.31 points, or about 1.1 percent, to 6,445.76, marking the year’s 16th record. The Nasdaq climbed 296.50 points, or 1.4 percent, to 21,681.90, its 19th record of 2025.

Traders increased the probability of a quarter point rate cut at the Federal Reserve meeting next month, pricing the target range at 4.0 percent to 4.25 percent with about 94.2 percent odds, up from 88 percent before the data.

The steady inflation reading reduces the risk of a policy shock while keeping the door open to easier policy. Markets interpret the data as support for a quicker path to rate cuts, which helps equities but leaves bond markets sensitive to every new data point.

If inflation turns out slower to ease than expected or the labor market weakens, the optimistic bets could fade and volatility may return. The risk is that markets price in too much relief, only to face a harsher repricing if the next data disappoints.

Highlights

Policy signals will keep markets listening in the days ahead.