What today’s inflation figures mean for the stock market – and your 401(K) and mortgage

While prices are still rising year-on-year, they are doing so at a lower rate than expected – which is a boost for the economy. Most economists predicted the annual consumer price index would be 3 percent in July.

Cooling inflation means more than just prices falling for Americans.

It gives the green light to Fed officials to lower interest rates. Such a move would cut borrowing costs for consumers and businesses.

A cut in benchmark borrowing costs would mean a fall in credit card rates and car loans. Eventually, it would also mean mortgage rates would come down.

This would free up more money for Americans to spend, and make borrowing costs cheaper for businesses.

Wall Street likes lower rates, which means stock prices, and 401(K)s, go up.

Used car and airfare costs were deflationary in the latest data.

The airline fares index fell 1.6 percent, which matches anecdotal reports from flyers this summer.

US stock futures struggled for direction and dipped slightly following the inflation report this morning.

S&P 500 futures were unchanged, Nasdaq futures fell 0.2 percent and Dow futures fell 0.1 percent.

10-year Treasury yields, which rise when bond prices fall, rose slightly to 3.87 percent.

This suggests traders may have anticipated an even cooler inflation reading.

Housing costs, known as the shelter index, accounted for 90 percent of the monthly increase in inflation, rising 0.2 percent in July.

Economists had expected a lot of the big rental increases of recent years and months to have already shown up in the data.

But the index still ticking higher suggests rises are not over yet.

The inflation report, released by the Labor Department Wednesday, likely seals the case for the Federal Reserve to begin cutting interest rates at its next meeting in September.

Economists will now be considering how much the Fed is likely to cut benchmark borrowing rates by.

Lindsay Rosner, from Goldman Sachs Asset Management, said the data ‘cleared the way’ for a quarter-point rate cut by the Fed in September, ‘while not completely shutting the door’ on a half-point cut.

Interest rates have remained at a 23-year high between 5.25 percent and 5.5 percent since July 2023.

Consumer prices were up 2.9 percent from a year earlier in July.

This is the first time that overall inflation, measured on a yearly basis, has come in below 3 percent since March 2021.

Economists surveyed by Dow Jones were expecting a 3 percent rise.

On a monthly basis, prices rose 0.2 percent, in keeping with expectations.