Inflation Figures Spark Market Rally as Deficit Concerns Linger

U.S. inflation figures released on Wednesday were in line with expectations, showing that consumer prices increased moderately in July. This news has had a positive impact on the stock market, with the Nasdaq and S&P 500 indices reaching new highs. The Federal Reserve's decision to keep interest rates unchanged is seen as a relief for investors.

The yield curve has steepened significantly since May, with the 2s/10s curve hitting its steepest level in nearly five months. This is attributed to the short end of the market experiencing strong demand, while the long end faces selling pressure due to concerns about the U.S. budget deficit.

The deficit has soared to $432 billion in July, a record for the month and 50% wider than last year's figure. The gross national debt is expected to exceed $40 trillion soon. This development has led to renewed calls for Washington to rein in the deficit, which currently stands at over 6% of GDP.