Dow up 130 points, U.S. stocks climb after another inflation update, Fed comments

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Dow intraday gain exceeds 200 points, while Nasdaq surge is twice as pronounced

U.S. stocks traded higher on Friday, but struggled to match the multi-month highs reached during the prior session, despite another encouraging reading on inflation expectations.

The headline index rose to 55.1 in August from 51.5 in July, while one-year inflation expectations dropped to 5% this month, from 5.2% the month prior. Joanne Hsu, director of the survey, pointed to a discrepancy in sentiment between low- and middle-income consumers, and the wealthier subset. “All things considered, we still think that headline inflation will drop below 2% by the middle of next year. But we would stress that the balance of risks is shifting, with downside risks now dominating. It’s no longer out of the question that headline inflation could briefly turn negative in the second half of 2023,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.

His comments echoed a similarly cautious stance embraced by San Francisco Federal Reserve President Mary Daly, who said earlier that it was too soon to “declare victory” over inflation in the U.S. During an interview with the Financial Times published Thursday, Daly said a 50 basis point interest rate rise remains her baseline case for the next Fed meeting in September. However, she is not a voter on the Federal Open Market Committee this year.

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