Wall Street closed with gains while waiting with anticipation for a key report on US inflation

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, September 9, 2022. REUTERS/Brendan McDermid (BRENDAN MCDERMID/)

Stocks ended higher Monday as Wall Street makes its final moves ahead of a high-profile report expected to show inflation hit the economy less hard last month.

The S&P 500 rose 1.1% on Monday, while earnings at tech companies pushed the price up a bit more. nasdaq.

The inflationwhich is very high in the country, and the measures that the Federal Reserve is taking to combat it, they have been the driving forces on Wall Street all year. Economists expect Tuesday’s report to show consumer prices were a 8.1% higher in August than a year earlier, but that inflation it wasn’t as bad as July’s 8.5% rate.

A deceleration It would reinforce hopes that inflation peaked in June at 9.1% and is on the way down again. This, in turn, could allow the Federal Reserve to avoid worst case scenario for marketsin which short-term interest rates rise to levels that cause a recession and keep them that way for a long time.

“This week is going to be very revealing”said James Demmert, founder and managing partner of Main Street Research.

In addition to Tuesday’s main report on consumer inflation, a report on Wednesday is expected to show the slowdown in wholesale inflation last month. A report on Thursday will show how American households have modified its spending amid high inflationwhile a report on Friday will show how much inflation households are preparing for in the coming years.

File image of Federal Reserve Chairman Jerome Powell (REUTERS/Elizabeth Frantz)
File image of Federal Reserve Chairman Jerome Powell (REUTERS / Elizabeth Frantz) (Elizabeth Frantz /)

All of this data is crucial for the Federal Reserve, which is considering raising interest rates at its meeting next week. Federal Reserve officials have recently reaffirmed their plans to raise rates enough to slow the economy, as well as their commitment to keep rates high long enough to ensure the job is done on inflation.

But with Tuesday’s report possibly continuing a trend, many investors and economists are hopeful that inflation can return to more “normal” levels quickly, unlike in the 1970swhen it took many years.

Jonathan Golub, chief US equity strategist at Credit Suisse, wrote in a report that investors and economists expect inflation to plummet in the next 12 to 18 months.

The markets are quite convinced that the Fed will raise its key short-term interest rate by another hefty 0.75 percentage point next week. But the hope is that an easing of inflation will allow the Fed to stay on its narrow path to a “soft landing” of the economy.

Namely, that higher rates slow the economy enough to curb inflation, but not enough to trigger a recession. Higher rates hurt the economy by making it more expensive to buy a house, a car, or anything else bought on credit. They also push down the prices of stocks, bonds and other investments.

Many traders expect the Federal Reserve start smoothing out the size of your rate hikes after next week and until the end of the year, before keeping rates stable until the first half of 2023.

Of course, these hopes could also be setting up Wall Street for disappointment. The economy has already given false hope about inflation, hoping that it has passed a peak to start accelerating again.

Demmert said the broader market is looking for inflation to not just peak, but start to cool down significantly. He said strong hopes from Tuesday’s inflation report are probably “not going to be healthy for stocks.”

Wall Street economists remain divided on whether the US economy will go into recession next year due to rising interest rates and other factors.

The Fed has already raised short-term interest rates four times this year, and his aggressive moves have helped the US dollar skyrocket in value against many other foreign currencies.

The strength of the dollar helps limit inflation in the country by reducing the prices of raw materials and imports, but it can also hurt profits for US companies that do a lot of foreign sales. The dollar gave back some of its gains on Monday, after falling against the euro, sterling and other currencies.

Treasury yields were mixed. The 10-year Treasury yield, which helps control where mortgage and other lending rates go, returned to 3.35%, near its highest level in more than a decade.

The two-year yield, which tends to track expectations for Fed action, remained steady at 3.56%. It remains near its highest level since before the 2008 financial crisis.

(With information from AP)

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