On August 12, 2025, U.S. stock markets experienced a significant rally, with major indices approaching record highs. The S&P 500 rose 1.1%, the Dow Jones Industrial Average gained 473 points, and the Nasdaq Composite climbed 1.3%. This upward momentum was driven by a July inflation report indicating a 2.7% annual increase, slightly below economists' expectations of 2.8%. Investors interpreted this data as a signal that the Federal Reserve might consider cutting interest rates at its upcoming September meeting, with market odds for a rate cut reaching 94%. Such a move could stimulate economic activity by making borrowing more affordable for consumers and businesses.
However, beneath the positive surface, some concerns lingered. Core inflation indicators suggested potential future increases, complicating the Federal Reserve's decision-making process. President Donald Trump has been vocal in urging the Fed to lower rates, often criticizing the Fed Chair and highlighting the mixed economic impact of his tariffs. International markets responded to the U.S. decision to delay tariffs on China, with mixed results in Asia. Treasury yields fluctuated slightly, reflecting market uncertainty ahead of further economic data releases. Investors should remain vigilant, monitoring upcoming inflation and employment reports, as these will provide crucial insights into the economy's trajectory and the Federal Reserve's policy decisions.