The Dow Jones Industrial Average (DJIA) surged to fresh all-time highs on Thursday, gaining more than 600 points at its peak and briefly touching 46,111 for the first time on record. The rally was fueled by US Consumer Price Index (CPI) data that largely matched expectations, reinforcing bets that the Federal Reserve (Fed) will begin cutting rates as soon as next week.
US inflation holds firm in August
Headline CPI rose 0.4% month-over-month in August, accelerating from 0.2% in July. On an annual basis, inflation edged up to 2.9%, compared with 2.7% previously. Shelter and food costs were the key contributors, with grocery prices advancing 0.5% in a single month.
Core CPI, which excludes food and energy, also climbed 0.3% MoM and 2.9% YoY, coming in line with median forecasts and underscoring sticky underlying price pressures.
CPI uptick keeps Fed rate cut bets intact
Despite inflation remaining elevated, the CPI release was not enough to derail market expectations for Fed easing. According to the CME FedWatch tool, traders are fully pricing in a 25-basis-point rate cut at the September 17 Federal Open Market Committee (FOMC) meeting.
Futures markets also point to nearly 95% odds of two additional rate cuts by year-end, with further moves expected on October 29 and December 10. Overall, investors are betting on a total of three cuts before the close of 2025.
Market outlook: sentiment data unlikely to shift momentum
Attention now turns to Friday’s release of the University of Michigan (UoM) Consumer Sentiment Index. The preliminary reading is expected to dip modestly to 58.0 from 58.2, but the data is unlikely to meaningfully sway market positioning given the strong conviction around Fed policy easing.
