US Inflation Rate Drop Lowers Fed Hike Odds to 35%

A recent US inflation report has brought some welcome news to Wall Street, as the Federal Reserve's chances of hiking interest rates next month have been downgraded.

The Commerce Department reported that the personal consumption expenditures (PCE) price index stood at 3.4% on an annual basis in August, which was softer than expected and a slight improvement over the previous estimate of 3.7%. This development has boosted hopes that the Fed might not raise rates as soon as anticipated.

The second-quarter GDP data also showed a solid increase, driven by robust consumer spending and business investment related to AI infrastructure buildout.

This positive news has triggered a move higher in the market, with traders now seeing a roughly 35% chance of an October rate hike, down from about 45% previously. The Federal Reserve is under pressure from the White House to cut rates after raising them earlier this month for the first time since 2023.

The Dow Jones industrial average rose by 50.58 points, or 0.10%, to 51,400.50; the S&P 500 gained 33.17 points, or 0.43%, to 7,704.01; and the Nasdaq Composite gained 193.57 points, or 0.72%, to 26,991.11.