Wall Street’s major indexes responded positively to an inflation reading that fell below economist predictions, with the personal consumption expenditures price index arriving at 3.4% annually in August compared to anticipated levels of 3.7%. The better-than-expected data prompted traders to reassess the likelihood of a rate increase in October, with probability estimates declining to approximately 35% from around 45% based on compiled market data.
Economic growth remained solid during the second quarter, supported by sustained consumer spending and corporate investments in artificial intelligence infrastructure development. The positive inflation report came as the Federal Reserve faces mounting pressure from the White House to reduce rates following an increase earlier this month, marking the first adjustment since 2023.
Market performance reflected the mixed sentiment, with the S&P 500 declining 0.25% and the Dow falling 0.86%, though the Nasdaq gained 0.24%. Despite recent weakness driven by bond market instability and elevated crude oil prices stemming from geopolitical tensions, both the S&P 500 and Nasdaq remained positioned for a second consecutive quarterly gain if current momentum persists.
Employment data also provided encouragement, as private employers added 90,000 jobs in September according to payroll processor ADP, surpassing expectations and improving from 36,000 positions created in August. The labor department is scheduled to release its comprehensive monthly employment report on Friday, which economists project will show a gain of 84,000 positions for September, down from 162,000 in the preceding month.
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