Inflation Cools to 3.4% in July, Wall Street Rallies as Rate Fears Ease
The in-line CPI report gave investors what they wanted — confirmation the Federal Reserve has room to hold its ground — sending tech and AI stocks higher at the open.
Wall Street opened higher Wednesday after the Bureau of Labor Statistics reported that consumer prices rose 3.4% in July from a year earlier, a slight cooling from June's 3.5% pace and right in line with what economists had forecast.
The Consumer Price Index climbed 0.1% month-over-month, a rebound from June's surprise 0.4% decline. Core CPI, which strips out volatile food and energy costs, rose 0.2% for the month and eased to 2.5% annually from 2.6%, according to the Labor Department's July report. Neither figure delivered the kind of surprise that tends to whipsaw markets — but that was largely the point for traders hoping the Fed's hand stays steady.
Rally at the Open
The S&P 500 rose 0.5% and the Nasdaq jumped 0.9% in early trading, with gains concentrated in the AI-infrastructure trade that took a beating in July. Chipmakers and storage names including SanDisk, Bloom Energy and Lam Research were among the session's biggest movers, according to Benzinga's market wrap. Strong tech earnings released this week added extra fuel to the rebound.
Interest-rate traders trimmed their bets on Fed tightening. The CME FedWatch tool put the odds of a rate move at the Fed's September meeting at 42%, down slightly from 45% a day earlier — a sign the report did little to change the broader picture even as it removed one source of near-term uncertainty.
BOTH HEADLINE AND CORE INFLATION CAME IN BROADLY IN LINE WITH EXPECTATIONS — NO SURPRISE, WHICH FOR JITTERY MARKETS WAS ITS OWN KIND OF RELIEF.
Ahead of the release, strategists at JPMorgan had modeled a range of market reactions depending on how far the print deviated from consensus; an in-line reading, they noted, was likely to produce only a modest, short-lived move — largely what played out at the opening bell.
What's Next
Attention now turns to the Fed's September meeting and the next round of jobs and producer-price data due before then. With inflation holding in a narrow band for two straight months, traders are increasingly betting the central bank has bought itself room to stay on hold — barring another shock.