U.S. stocks rallied as investors bet that the August inflation data would not stop the Federal Reserve from cutting interest rates next week.
The tech-heavy Nasdaq Composite Index advanced by about 157 points, or 0.72 percent. The broader S&P 500 picked up 55 points, or 0.85 percent. So far this year, the indexes are up by 14.15 percent and 12 percent, respectively.
Wall Street cheered on higher odds that the latest inflation figures will unlikely prevent the U.S. central bank from lowering interest rates when officials meet later in September.
Core CPI, which excludes the noisier energy and food categories, increased by 0.3 percent in August and by 3.1 percent on a 12-month basis. Both readings matched market estimates.
In another sign that the U.S. labor market is cooling, weekly jobless claims soared to a four-year high.
This figure exceeded the consensus forecast of 235,000 and was the highest since October 2021.
Recurring jobless claims—a measure of the number of individuals currently out of work and receiving unemployment benefits—were flat at 1.94 million.
Despite intact economic growth prospects—the Federal Reserve Bank of Atlanta’s GDPNow Model estimate suggests a 3 percent expansion in the third quarter—a softening labor market is fueling expectations that the Fed will restart its easing campaign, which has been paused since January.
The White House is urging the Fed to take a more aggressive approach to cutting the federal funds rate, but market watchers say the central bank will likely take the stairs down over the coming months.
“August’s CPI print shows inflation is still hanging around,” Gina Bolvin, president of Bolvin Wealth Management Group, told The Epoch Times in an email. “Core inflation at 3.1 percent suggests we’re not out of the woods yet, but we’re not heading into the deep end either.
“The Fed may still cut, but this data argues for a gradual path, not an aggressive pivot.”
Scanning the Yields
CME FedWatch Tool data suggest that investors are penciling in a 93 percent chance of a quarter-point rate cut at the Federal Open Market Committee policy meeting from Sept. 16 to Sept. 17.Looking ahead, traders anticipate two more quarter-point rate cuts by year’s end.
Yields in the U.S. Treasury market were mainly in the red, with the benchmark 10-year yield slipping below 4.02 percent.
The two-year yield, which tends to track the Fed’s policymaking efforts, was little changed at about 3.53 percent.
While inflation numbers are running above the Fed’s 2 percent target, the latest CPI and producer price index data suggest that the situation is “contained for the time being,” which could be beneficial for crowds demanding lower interest rates, according to Eric Teal, chief investment officer for Comerica Wealth Management.
“This bullish steepening of the yield curve is a key feature of the economic environment and bodes well to blunt any economic slowdown and benefit smaller companies and everyday consumer activity,” Teal told The Epoch Times in an email.
Long-term interest rates have eased so far in September after hovering at about 5 percent throughout the summer.
The U.S. Dollar Index, a gauge of the greenback against a weighted basket of currencies, fell further below 98. This year, the index has cratered by 10 percent.
