Stocks are closing at three-month highs on Wall Street as investors cheered a report showing inflation cooled more than expected in July
. The S&P 500 jumped 2.1% Wednesday on expectations that slower inflation will mean the Federal Reserve won’t hike interest rates as much as feared. Technology stocks, cryptocurrencies and other investments among the year’s biggest losers due to the Fed’s aggressive rate hikes led the way. Treasury yields pulled back sharply following the inflation data, as traders pared their bets for how much the Fed will raise interest rates at its meeting next month.
Much of July’s slowdown in inflation was due to lower prices for gasoline and oil. But even after ignoring that and volatile food prices, so-called “core inflation” held steady last month instead of accelerating as economists had forecast. Prices for bonds soared immediately after the inflation report’s release, pulling their yields lower. The yield on the two-year Treasury, which tends to track expectations for the Fed, fell to 3.14% from 3.27% late Tuesday.
“It’s a very knife edge type of path that they are trying to tread here,” said Brian Nick, chief investment strategist at Nuveen. The Federal Reserve will get a few more highly anticipated reports before its next announcement on interest rates Sept. 21, which could also alter its stance. Those include reports showing hiring trends across the economy due Sept. 2 and the next update on consumer inflation coming on Sept. 13.
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