The U.S. stock market surged on Tuesday after new inflation data came in slightly better than expected, boosting hopes for a potential interest rate cut by the Federal Reserve in September.
By midday, the S&P 500 had climbed 0.9% and was approaching its record high from two weeks ago. The Dow Jones Industrial Average rose 467 points, or 1.1%, while the Nasdaq gained 1.1% and was also on track to hit a new high.
The rally followed a report showing that consumer prices in July were 2.7% higher than a year earlier — matching June’s rate and coming in slightly below economists’ forecasts of 2.8%. The cooling inflation figures fueled optimism that the Fed may finally have room to lower interest rates, something that could further stimulate the economy and boost financial markets by reducing borrowing costs for consumers and businesses.
President Donald Trump has repeatedly pressured the Fed to cut rates, often criticizing its leadership. However, the central bank has been cautious, concerned that lowering rates too soon could worsen inflation — especially in light of ongoing tariffs, which could push consumer prices even higher.
Traders are now pricing in a 94% chance of a rate cut in September, up from 86% just a day earlier, according to CME Group data. The Fed still has one more inflation report and a jobs report to review before its next meeting wraps up on September 17.
Though the headline inflation number was encouraging, some economists warned that underlying inflation remains a concern. A core measure of inflation — considered a more reliable gauge of future trends — reached its highest level since early this year, creating volatility in the bond market. Yields on 10-year Treasurys rose to 4.30% from 4.27%, while the two-year yield, which reflects expectations for Fed policy, slipped to 3.73% from 3.76%.
Experts say tariffs can take time to fully show up in consumer prices, which could make interpreting future data challenging. This uncertainty adds complexity to the Fed’s balancing act between controlling inflation and supporting the job market.
Global central banks are also easing policy. Australia, for example, cut rates for the third time this year on Tuesday.
On Wall Street, several individual stocks made headlines. Intel jumped 3.2% after Trump praised its CEO, days after previously calling for his resignation. Circle Internet Group, the firm behind the USDC stablecoin, rose 2.4% despite posting a larger-than-expected loss. Its revenue and reserve income increased by 53% in its first quarter as a public company, beating expectations.
Not all companies had a good day. Chemical maker Celanese dropped 10.3% despite beating profit estimates, citing ongoing challenges in customer demand. Cardinal Health also fell 7.3% after missing revenue expectations, even though profits topped forecasts. Analysts said investors had high hopes, given the stock’s 33.3% rise earlier this year.
Some analysts warn that the broader market may be overvalued after rebounding sharply since April, raising pressure on companies to deliver strong results.
Overseas, markets were mixed. Chinese indexes edged higher after Trump delayed new tariffs on Chinese goods by 90 days, a widely expected move that may help pave the way for progress in U.S.-China trade talks. Japan’s Nikkei 225 climbed 2.1%, while South Korea’s Kospi declined 0.5%.
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U.S. Stocks Hover Near Record Highs as Wall Street Awaits Inflation Report
