U.S. Inflation Slows in July as Markets Rally and Fed Rate Cuts Loom

U.S. consumer prices rose less than expected in July, easing fears of a sharp inflation spike from recent tariff hikes. The Consumer Price Index (CPI) increased 0.2% for the month and 2.7% annually, slightly below the Dow Jones forecast of 2.8%. While core inflation came in marginally higher than anticipated and marked its highest level since February, analysts say the impact of President Donald Trump’s 50% tariffs on Indian imports has yet to significantly filter through to broader prices.

Market optimism surged following the report, with the S&P 500 and Nasdaq Composite closing at record highs, gaining 1.13% and 1.39% respectively. Investors interpreted the mild CPI data as a signal that the Federal Reserve may have room to cut interest rates up to three times this year. Asia-Pacific stocks also traded higher on Wednesday, with Japan’s Nikkei 225 reaching a new all-time peak.

Goldman Sachs chief economist Jan Hatzius projected that any substantial consumer price increases from tariffs could materialize by October, keeping inflation under close watch. Former White House economist Jared Bernstein noted that while tariffs are affecting prices, they are not yet causing significant economic disruption. The uncertainty has left markets balancing between a cautious inflation outlook and confidence in continued economic growth.

Meanwhile, political tensions flared as President Trump threatened Federal Reserve Chair Jerome Powell with a “major lawsuit” over the central bank’s headquarters renovations. In corporate news, artificial intelligence company Perplexity AI made a surprise $34.5 billion bid to acquire Google’s Chrome browser — nearly double its own valuation just a month ago.

On the commodities front, analysts predict gold prices could rally to $4,000 per ounce after Trump confirmed the precious metal will remain exempt from tariffs. As global markets digest U.S. inflation trends and geopolitical developments, investors are weighing whether the economy’s trajectory resembles a suspense-filled drama or a rare economic fairy tale.

Source: CNBC