Markets jump on new data showing US inflation easing slightly

Wall Street headed for strong gains before the opening bell Wednesday after the government reported inflation eased slightly last month, but remained high enough to be an issue of concern at the Federal Reserve.

Futures for the benchmark S&P 500 index rose 1.8% and 1.3% on the Dow Jones Industrial Average.

The Labour Department reported that US inflation in July eased to 8.5% from the previous month's four-decade high of 9.1% as gas prices retreated significantly.

But anything above 8% is “still too high” for the Fed, Tan Boon Heng of Mizuho Bank said.

“The fight to tackle inflation is far from over,” Tan said before the inflation data was released.

While some signs point to inflation easing in the coming months, it will likely remain far above the Federal Reserve’s 2% annual target well into next year and maybe even into 2024. Chair Jerome Powell has said the Fed needs to see a series of declining monthly core inflation readings before it would consider pausing its rate hikes.

The Fed has raised its benchmark short-term rate at its past four rate-setting meetings, including a three-quarter point hike in both June and July – the first increases that large since 1994. Investors expect another hike of 0.75 percentage points in September after data last week showed hiring was stronger than forecast.

Investors fear that efforts by the Fed and other central banks in Europe and Asia to cool inflation might derail global economic growth.

Fed officials acknowledge there is a danger the US economy might tip into recession, but some point to the strong job market as evidence it can tolerate more rate hikes.

In midday trading, the FTSE 100 in London gained 0.3% and the DAX in Frankfurt advanced 1.1%. The CAC 40 in Paris climbed 0.8%.

On Tuesday, the S&P fell 0.4%, the Dow slipped 0.2% and the Nasdaq lost 1.2%.