• US stocks ended Wednesday’s session mostly higher as investors recorded the lowest inflation reading in three years.
• In July, consumer prices rose 2.9 percent compared to the same period last year, supporting speculation about a rate cut by the Fed.
• The only debate in the markets right now is how deep the cuts will be by the end of 2024.

U.S. stocks closed higher on Wednesday after investors welcomed data on cooling inflation and reiterated bets on Fed rate cuts.

The Dow Jones Industrial Average and the S&P 500 ended the trading session with gains, while the Nasdaq Composite was nearly unchanged.

The yield on 10-year government bonds fell slightly by one basis point to 3.837%.

Consumer prices continued to cool in July, with inflation rising 2.9% on an annual basis, the Bureau of Labor Statistics reported. That’s less than the 3% annual price increase recorded in June and the lowest inflation rate since March 2021, strengthening the case for a Fed rate cut in September.

The markets are pricing in an interest rate cut next month for sure. According to the CME FedWatch tool Traders are betting that the probability of a 25 basis point rate cut is 65% and the probability of a 50 basis point cut is 36%..

“Today’s release of the consumer price index effectively rolls out the red carpet for rate cuts starting in September,” Jason Pride, head of investment strategy and research at Glenmede, said in a note, adding that the firm expects four rate cuts by year-end.

“Although another CPI report is still pending before the FOMC reconvenes, the July report solidified some emerging trends that are likely to give the open market the confidence it needs to move away from its tight monetary policy,” Pride added.

Expectations for Fed easing have surged over the past month, particularly after the labor market proved unexpectedly weak in July. Unemployment rose to its highest level since the pandemic, fueling concerns that high interest rates could push the economy toward recession.

“This, combined with the recent slowdown in the labor market, supports a case for near-term Fed rate cuts,” said David Doyle, chief economist at Macquarie, commenting on the latest CPI figures. The company is forecasting rate cuts of 75 basis points by the end of the year.

“The extent and scope of the easing will depend on the flow of data, with inflation and employment figures being of particular importance,” he added.

Alphabet shares fell on Wednesday, weighing on the Nasdaq. The tech giant lost more than 2 percent after reports that the government is considering steps to break up the company after a federal judge ruled that Google’s search engine parent company constitutes an illegal monopoly.

Here you can see the US indices at the close of trading on Wednesday at 4:00 p.m.:

Here’s what else is going on:

For commodities, bonds and cryptocurrencies:

• West Texas Intermediate crude oil fell 1.54 percent to $77.14 a barrel. Brent crude oil, the international benchmark price, rose slightly by 0.15 percent to $79.88 a barrel.
• The price of gold fell 0.83% to $2,444 per ounce.
• The yield on 10-year government bonds fell one basis point to 3.837%.
• Bitcoin fell 2.6% to $58,820.