US futures edge higher as key inflation report matches expectations

US stock futures inched up Wednesday as Wall Street digested a key signal on consumer prices that is set to help shape the near-term future of interest-rate policy. Futures tied to the S&P 500 (ES=F) and the tech-heavy Nasdaq (NQ=F) were up around 0.2%. Those on the Dow Jones Industrial Average futures (YM=F) hovered near the flatline.

The Consumer Price Index (CPI) showed price increases held largely steady in July. Consumer prices rose 2.9% year-over-year in July, the first time headline inflation has dipped below 3% since 2021. On a „core” basis, stripping out costs of food and energy, prices rose 3.2% year over year. Both numbers largely met Wall Street forecasts.

Wall Street rallied Tuesday on the back of positive inflation data that could foreshadow a similar direction in consumer prices. The Producer Price Index, which measures wholesale inflation in the US economy, rose just 2.2% year-over-year in July, nearly in line with the Federal Reserve’s 2% target.

Together, the inflation signals could get the Fed closer to a rate cut. Even the most hawkish members of the Fed are signaling they need just a bit more good data to be ready to support an interest rate cut. More signs of cooling inflation, combined with a cooling job market, would likely leave the Fed positioned for a rate cut at its September meeting.

According to the CME FedWatch tool, traders are aligned on a Fed cut next month — the question is by how much. Just over half of bets are on a bigger, 50 basis point cut, while the rest remain on a 25-point cut.

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Wed, August 14, 2024 at 3:35 PM GMT+3

Inflation falls more than expected in July

Consumer prices increased less than expected in July as investors continued to look for signs that the Federal Reserve could begin to cut interest rates.

The July Consumer Price Index (CPI) showed prices ticked up slightly at 0.2% over last month, an increase from the 0.1% decline in June. Prices rose 2.9% over the prior year, a decrease from the 3% seen in June. The report marked the first time that overall inflation, on a year-over-year basis, has come in below 3% since March of 2021.

Economists had expected prices to increase 0.2% month over month and rise 3% year over year, according to Bloomberg data.

When removing the volatile food and energy categories, „core” inflation fell to an annual rate of 3.2% from 3.3% the month prior. Economists surveyed by Bloomberg had expected core inflation of 3.2%. On a monthly basis, core inflation was 0.2%, up slightly from the 0.1% the month prior.