Wall Street opened higher Tuesday after July’s inflation report showed consumer prices rising largely as expected, reinforcing expectations for a Federal Reserve rate cut next month. The Consumer Price Index (CPI) increased 0.2% month-over-month and 2.7% annually—slightly below forecasts—while core inflation edged up to 3.1%, reflecting lingering price pressures from tariffs.
The data solidified market bets on monetary easing, with interest rate futures pricing in an 88.8% chance of a 25-basis-point cut in September. Shorter-dated Treasury yields dipped as traders digested the report. “Tariff impacts will trickle in gradually rather than spike all at once,” said Brian Jacobsen of Annex Wealth Management, noting that contained inflation expectations should give the Fed room to act.
Equities rallied broadly, with Dow futures up 0.6%, while the Russell 2000 small-cap index surged 1.3%. Sentiment also got a boost from the U.S. and China delaying new tariffs until November 10, temporarily averting escalated trade tensions. However, the report’s release under renewed scrutiny of economic data quality, following recent leadership changes at the Labor Department.
While the inflation trajectory keeps the Fed on track for September easing, analysts caution that trade policy and wage growth remain wildcards. With markets now focused on upcoming retail sales and jobs data, the path for further rate cuts will hinge on whether core inflation continues its gradual retreat toward the Fed’s 2% target.