U.S. stocks surged to record highs after July’s CPI data matched forecasts, strengthening expectations for a September Fed rate cut. Treasury yields dipped, the dollar weakened, and investors shifted focus to labor market signals.

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Wall Street Climbs as In-Line Inflation Report Strengthens Rate Cut Outlook

New York, August 12, 2025 — U.S. markets surged on Tuesday as a closely watched inflation reading came in line with forecasts, reinforcing bets that the Federal Reserve could lower interest rates in September. The data, which showed core consumer prices rising at the fastest pace since January but still within expectations, helped fuel broad gains in equities while pushing short-term bond yields lower and weighing on the dollar.

The S&P 500 broke through the 6,400 mark for the first time, extending its record-setting run. The Russell 2000, a benchmark for small-cap companies, jumped more than 2%, signaling confidence beyond the megacap technology sector.

Money markets are now pricing in a roughly 90% probability of a Fed rate cut next month, with some traders even eyeing a larger-than-expected reduction.

Inflation Data Matches Expectations

According to the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics, core CPI — which excludes volatile food and energy components — rose 0.3% month-over-month in July. On a yearly basis, core prices accelerated to 3.1%, the highest since the start of 2025.

The uptick in inflation was driven primarily by services costs, while goods prices rose only modestly, easing fears that recent tariff measures might quickly push consumer prices higher.

“Inflation is on the rise, but it didn’t increase as much as some people feared,” said Ellen Zentner, Chief Economist at Morgan Stanley Wealth Management. “This keeps the Fed’s focus on labor-market weakness and leaves the door wide open for a September rate cut.”

Market Reaction: Stocks Up, Dollar Down, Yields Mixed

Equities rallied across the board following the CPI release:

• S&P 500: +0.9% to a record high
• Nasdaq 100: +0.9%
• Dow Jones Industrial Average: +1.1%
• Russell 2000: +2.1%

The Bloomberg Magnificent 7 Index, tracking major tech giants, rose 0.8%, as investor enthusiasm for artificial intelligence and strong corporate earnings continued to drive buying.

In the bond market, the yield on 2-year Treasuries, which is particularly sensitive to Fed policy expectations, fell four basis points to 3.73%. The 10-year yield edged up slightly to 4.30%, while 30-year yields rose three basis points to 4.89%.

The U.S. dollar weakened, with the euro climbing to $1.1672, the British pound up to $1.3505, and the yen strengthening to 147.82 per dollar.

Federal Reserve Policy Outlook

The Fed has kept rates steady throughout 2025, aiming to assess the lasting impact of tariff policies on inflation while monitoring signs of labor market cooling. Revised payroll data in recent months have indicated a slowdown in hiring, giving policymakers greater reason to consider rate cuts to support economic growth.

Market strategists say the July CPI report gives the central bank the flexibility to ease policy without appearing soft on inflation.

“Inflation remains under control for the moment, which means the risks are tilting toward the Fed’s full employment mandate,” said Jason Pride, Chief Investment Officer for Private Wealth at Glenmede.

Some analysts believe the Fed could go further than the market expects.

“Today’s numbers are tame enough to give the Fed the green light for at least a 25-basis-point cut in September — and possibly 50 basis points,” said Skyler Weinand of Regan Capital.

Tariff Impact Still a Wild Card

While current data suggest that tariff-driven price increases are not yet fully passed on to consumers, economists warn that the real impact may not appear until later in the year.

Greg McBride, Chief Financial Analyst at Bankrate, cautioned:

“This could be the calm before the storm. New tariffs are taking effect this month, and it could take a few months for those costs to filter through supply chains and show up in consumer prices.”

Corporate Highlights

• Intel Corp.: President Donald Trump met with CEO Lip-Bu Tan and said further discussions will take place with Cabinet members in the coming week.
• Apple Inc.: Elon Musk criticized the company’s app store policies, claiming favoritism toward OpenAI.
• Circle Internet Group: The stablecoin issuer reported stronger-than-expected revenue, sending shares sharply higher.
• Gildan Activewear: In advanced talks to acquire Hanesbrands Inc. in its largest-ever potential deal.
• Novo Nordisk & Biogen: Potential collaboration opportunities discussed if Novo’s Alzheimer’s trial succeeds.
• China Evergrande: Announced its Hong Kong stock delisting, marking the collapse of one of China’s most prominent developers.

Commodities and Cryptocurrencies

• Oil: West Texas Intermediate crude fell 1.1% to $63.26 per barrel.
• Gold: Up 0.2% to $3,348.66 an ounce.
• Bitcoin: Up 0.9% to $119,896.45.
• Ethereum: Up 5.2% to $4,464.66.

What’s Next?

With CPI data out of the way, investor attention turns to Friday’s retail sales report, which could provide fresh insight into consumer sentiment amid slowing job growth.

Bret Kenwell at eToro notes:

“If consumers keep spending at the pace suggested by corporate earnings commentary, the market rally could extend further — but any sign of weakness could spark volatility.”