An in-line inflation reading spurred gains in both stocks and bonds, easing concern about imminent Federal Reserve rate increases despite elevated oil prices.
The data brought relief to Wall Street traders worried about ongoing geopolitical risks, with the S&P 500 poised to extend this month’s advance. A rally in technology companies also helped sentiment, driving Nasdaq 100 futures up 1%. Treasury two-year yields fell three basis points to 4.18%. Money markets trimmed bets on a September Fed hike.
The consumer price index, excluding often-volatile food and energy categories, increased 0.2% from a month earlier, according to Bureau of Labor Statistics data. On an annual basis, it advanced 2.5%, matching the slowest pace since March 2021.
Overall, consumer prices rose 0.1% from the prior month and 3.4% from a year earlier.
In the wake of Friday’s weak July jobs report, the moderation in price growth may help alleviate some of the inflation anxiety at the Fed after three officials dissented on July 29 in favor of raising interest rates.
“Contained core inflation adds to the encouraging signs in last month’s release of a moderation in underlying inflation, helping strengthen the case for a September hold,” said Lindsay Rosner at Goldman Sachs Asset Management.
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Economic data has taken on renewed importance as Fed Chairman Kevin Warsh seeks to make the central bank less forthcoming about its policy intentions, breaking with recent tradition of signaling moves ahead of official decisions. Long-dated Treasury yields surged to the highest levels in almost two decades after the Fed held interest rates last month.
“Wednesday’s CPI was in-line with expectations, which is welcome news, but it is becoming clear that the CPI data is moving in lockstep with oil prices, and the Federal Reserve has no control over the Strait of Hormuz, and this paints a long and unknown road for inflation to get back towards the 2% target,” said Skyler Weinand at Regan Capital.
The elevated, but stable CPI data will keep the Fed data dependent in determining its next move as we still have another few key data prints to come out between now and the Fed’s next meeting in September, he said.
Elsewhere, oil wavered as traders continued to weigh the prospect for a deal to restore energy flows through the Strait of Hormuz.
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