US Stocks Ignoring Warning Signs as Inflation Remains Above Target

The latest US inflation updates have been released, and they are in line with consensus expectations. The Headline CPI for July fell to 3.4% from 3.5%, while Core CPI edged down to 2.5% year-on-year from 2.6% previously.

However, despite the relative indifference of traders immediately after the releases, the probability of the Fed leaving interest rates unchanged at its next monetary policy meeting in mid-September rose to 68% from 50%. The likelihood that there will be at least one 25-basis point rate hike before the year-end dropped to 68% from 78%.

The US dollar sold off after the inflation updates, but stock index futures headed higher. However, both moves had unwound within an hour or so.

It's worth noting that all major US inflation measures continue to hold above the Fed's 2% target, including Core PCE, which was previously the Fed's preferred inflation gauge.