US markets extend record run as July inflation holds at 27% and rate cut hopes soar

US equity markets surged to new heights on Tuesday after official figures revealed inflation remained steady at 2.7 per cent in July. This development fuelled investor optimism that the Federal Reserve may lower interest rates at its next meeting, intensifying trading activity and drawing attention from global financial observers.

The S&P 500 index, widely regarded as a key indicator of US corporate performance, climbed by 72.31 points or 1.1 per cent, closing at 6445.76 and setting its sixteenth record for 2025. The technology-focused Nasdaq also broke previous records, rising by 296.5 points or 1.4 per cent to 21681.90, registering its nineteenth high of the year.

Latest inflation statistics prompted traders to increase their bets on a quarter point interest rate cut to a range between 4 per cent and 4.25 per cent at the September Federal Reserve meeting, with the probability jumping to 94.2 per cent after the release, up from 88 per cent beforehand. These speculative moves have been closely watched amid ongoing debate about the future trajectory of US monetary policy.

President Trump immediately renewed his criticism of the Federal Reserve and Chairman Jerome Powell, insisting on the need for lower rates. He also referenced what he described as a major lawsuit regarding the ballooning costs of renovating the Federal Reserve’s buildings, which have reportedly increased to $2.5 billion from $1.9 billion since 2019. Trump maintained, ‘Jerome Too Late Powell must NOW lower the rate,’ taking to his Truth Social platform to voice his perspective. He further blamed Powell for mismanagement of the central bank’s construction projects and threatened to allow legal proceedings to continue.

Underlying inflation, particularly sensitive to policymakers at the Fed, reached a five month high in July as prices for services, medical products, and airfares rose sharply. Medical care costs jumped by 0.7 per cent for the month, airfares increased by 4 per cent, dental appointment costs rose 2.6 per cent and used car and truck prices grew by 0.5 per cent. Clothing prices edged up just 0.1 per cent, while new car prices remained constant, easing some fears about tariff driven price surges for imported goods.

The Trump administration continues to present tariffs as a means to raise government revenues and incentivise companies to bolster domestic production. Some major technology firms have announced substantial new investments in the United States, highlighting efforts to strengthen the local economy amid ongoing tariff strategies.

With the Federal Reserve’s next monetary policy decision still pending further inflation and employment data, some economists advised caution regarding market expectations of aggressive rate cuts over the next year and a half. Stephen Brown of Capital Economics remarked that markets might be overestimating the extent of monetary easing likely in the near future. Meanwhile, the dollar index, measuring the greenback against a basket of currencies, slipped by 0.15 per cent.