Wall Street near highs after weaker-than-expected inflation

After Asian markets reacted positively this morning to a US inflation reading in line with expectations, the Wall Street session confirmed that reading with concrete gains: the S&P 500 index moved closer to new record highs, while bond yields fell further. This is reported by Bloomberg, which attributes the movement to further signs of moderating inflation.

The most concrete data point concerns two-year Treasury yields, which fell six basis points to 4.14 percent. On the monetary policy expectations front, money markets have reduced the probability of a Federal Reserve rate hike in September to 35 percent, down from 50 percent estimated at the start of the week: a revision that reflects the reading of the inflation data as an element favoring a pause by the central bank, not a new intervention.

Bill Adams, chief economist at Fifth Third Commercial Bank, commented on the July consumer price report according to TheStreet: in his view, the data is just enough to push the Fed toward a pause in rates at the September meeting.

Compared with this morning’s reading — which merely noted the absence of negative surprises in the Asian data — the afternoon thus adds two concrete elements: Wall Street’s actual reaction, with the S&P 500 near record highs, and the translation of that reaction into a lower probability of a rate hike in September. The picture that emerges is one of a market that is no longer merely betting on the absence of bad news, but is beginning to concretely price in a pause by the Federal Reserve at the next meeting.