US Inflation Eases to 3.4%, Calming Markets and Fed Worries

The latest US inflation report for July showed a slight decrease in prices, easing pressure on the Federal Reserve to raise interest rates. The Consumer Price Index (CPI) rose by just 0.1% from June, bringing the annual rate to 3.4%, exactly as economists had forecasted.

Core inflation, which excludes food and energy prices, held steady at 2.5% for the year, rising 0.2% on the month. This in-line reading was a welcome relief for markets, which had been bracing for a potentially higher number.

The report's impact on the Federal Reserve's next move is significant. With inflation still above its 2% target, officials remain divided on whether to hold rates steady or tighten further. However, traders now lean towards the Fed holding rates steady at its September meeting, which could be a positive sign for stocks.

The market reaction was modestly positive, with the S&P 500 and Nasdaq edging higher. The gains were boosted by strong earnings from AI companies, including CoreWeave and Super Micro, which surged after impressive reports. While inflation remains above target, the cooling trend gives the Fed room to be patient.