Why did Wall Street pop the champagne after a not-so-chilly inflation report? Stocks celebrated July’s tame CPI numbers, as traders saw them as opening the door wide for a Federal Reserve rate cut in September. The S&P 500 and Nasdaq both ended at fresh record highs, jumping 1.13% and 1.37% respectively. Global indexes followed suit: the MSCI All Country World Index hit an all-time high, and Japan’s Nikkei 225 breached 43,000.
Rate cut fever isn’t just a hunch; Fed futures now price in an 88-94% probability of a policy cut next month. Meanwhile, Treasury yields slipped and the dollar softened, as risk appetite surged worldwide. Even relief around a temporary pause on new China tariffs added to the party mood.
But observers warn: If inflation picks up as tariffs trickle through, the Fed’s “free pass” may quickly expire.
