What Today’s Inflation Numbers Mean for the Stock Market and Your 401(K) and Mortgage

US stocks opened unchanged on Wednesday following an inflation report that came in as expected.

The S&P 500 rose 0.3 percent, the Nasdaq Composite fell 0.1 percent and the Dow Jones Industrial Average rose a marginal 0.09 percent.

Investors had been awaiting the consumer price index reading to get a better idea of ​​the overall state of the economy and the likelihood of a rate cut in September.

“Today’s expected CPI is unlikely to alter the outlook,” said Chris Larkin, executive director of trading and investments at Morgan Stanley’s E-Trade.

‘Now the main question is whether the Fed will cut rates by 25 or 50 basis points next month.’

President Joe Biden said the report “shows we continue to make progress in combating inflation and lowering costs for American households.”

“Inflation has fallen below 3 percent and core inflation has fallen to the lowest level since April 2021,” it said in a statement.

“We have more work to do to reduce costs for working Americans, but we are making real progress: wages are rising faster than prices for 17 consecutive months.”

Food price inflation was generally subdued in July, rising 0.2 percent from the previous month. This was the same rate as it rose in June.

However, some items experienced significant increases.

Egg prices rose 5.5 percent from June, a faster pace than the 3.5 percent increase in June.

Prices of fruit and vegetables also rose slightly, by 0.8 percent in the month. In June, prices had fallen by 0.5 percent.

While prices are still rising year-on-year, they are doing so at a slower pace than expected, which is a boost for the economy. Most economists had forecast the annual consumer price index to rise by 3 percent in July.

Cooling inflation means more than just falling prices for Americans.

It gives Federal Reserve officials the green light to cut interest rates, which would lower borrowing costs for consumers and businesses.

A reduction in benchmark borrowing costs would mean a drop in interest rates on credit cards and car loans. In the long run, it would also mean a reduction in mortgage rates.

This would free up more money for Americans to spend and make borrowing costs cheaper for businesses.

Wall Street likes lower rates, which means stock prices and 401(K)s go up.

Used car and airline ticket prices were deflationary, according to the latest data.

The airfare index fell 1.6 percent, which is in line with anecdotal reports from travelers this summer.

US stock futures struggled to find direction and fell slightly following this morning’s inflation report.

S&P 500 futures were unchanged, Nasdaq futures fell 0.2 percent and Dow futures fell 0.1 percent.

Yields on 10-year Treasury notes, which rise when bond prices fall, edged up slightly to 3.87 percent.

This suggests traders may have anticipated an even cooler inflation reading.

Housing costs, known as the housing index, accounted for 90 percent of the monthly increase in inflation, rising 0.2 percent in July.

Economists had expected that many of the large rent increases of recent years and months would have already been reflected in the data.

But the fact that the index is still rising suggests the gains are not over yet.

The inflation report, released by the Labor Department on Wednesday, likely seals the case for the Federal Reserve to begin cutting interest rates at its next meeting in September.

Economists will now consider how much the Fed is likely to cut benchmark interest rates.

Goldman Sachs Asset Management’s Lindsay Rosner said the data “paved the way” for a quarter-point rate cut by the Fed in September, “though it did not completely close the door” on a half-point cut.

Interest rates have remained at a 23-year high of 5.25 percent to 5.5 percent since July 2023.

Consumer prices rose 2.9 percent from a year earlier in July.

This is the first time that headline inflation, measured on an annual basis, has fallen below 3 percent since March 2021.

Economists polled by Dow Jones had expected a 3 percent increase.

On a monthly basis, prices rose 0.2 percent, in line with expectations.