The Wall Street is breathing a sigh of relief as the US stock market inched towards record high on Tuesday after new data suggested that inflation last month was slightly lower than what the economists had predicted. This has given air to speculation and hope that the Federal Reserve could cut interest rates in September.
Slashing interest rates would help the US economy and raise investment values by making it cheaper for Americans and businesses to borrow money for homes, cars, or equipment. US President Donald Trump has been pushing strongly for these cuts and has often criticised Fed Chair Jerome Powell for not doing so.
However, the Fed has shown caution as it’s worried that Trump’s tariffs could make inflation worse. Lower rates could push prices even more. That’s why Fed officials have said they want to see more information on inflation before making a decision.
US Market – Statistics as of Tuesday
The S&P 500 climbed 1.1% and was close to beating its record from two weeks ago. By 2:46 p.m. Eastern time, the Dow Jones Industrial Average had gained 473 points or 1.1%, and the Nasdaq composite was up 1.3%, also nearing a record high.
What did the US inflation data say?
The US inflation data on Tuesday showed that in July, Americans paid 2.7% more for groceries, gas, and other living costs as compared to last year. This was the same as June’s inflation rate and slightly lower than the 2.8% that the economists had expected.
This led traders to raise their bets over Fed likely taking the decision to cut interest rates next month, for the first time this year.
Will next inflation data change the market’s tune?
Before the next meeting in September, the Fed will get one more report on inflation and jobs. The last jobs report was surprisingly weak, falling short of economists’ expectations.
Some experts warn that upcoming data could still change the situation. Ellen Zentner from Morgan Stanley Wealth Management told Bloomberg that inflation is still rising, but not as much as people had worried. She noted that, for now, the market is likely to welcome these figures because they give the Federal Reserve room to pay more attention to the weak job market and keep the possibility of a September rate cut open.
Tom Barkin, President of the Fed’s Richmond branch, told Bloomberg that now, there is less uncertainty about where the economy is heading, but it’s still not clear whether the Fed should focus more on controlling inflation or supporting jobs.
‘Jerome Too Late Powell must NOW lower the rate’: Trump slams Powell yet again
Trump resumed his criticism for Powell on Tuesday and took to Truth Social to express his disappointment. Addressing the Fed Chair as Jerome “Too Late” Powell, Trump said that the time to lower the interest rate is “NOW”. He further added that the damage done by Powell due to him being “too late” has been “incalculable”. Trump claimed the economy is performing well despite Powell and the Fed’s board. He also said that he is thinking about allowing a major lawsuit against Powell over what he called poor management of the Fed building project, which he said cost $3 billion instead of the $50 million he believed was enough for repairs.