"It may not have been as cool as yesterday's PPI, but today's as-expected CPI likely will not rock the boat," said Chris Larkin at E*Trade from Morgan Stanley. "Now the primary question is whether the Fed will cut rates by 25 or 50 basis points next month. If most of the data over the next five weeks points to a slowing economy, the Fed may cut more aggressively."
At Evercore, Krishna Guha said the July CPI was not perfect, but it was good enough as it was consistent with a tame read on the Fed's preferred inflation measure. In addition, the central bank has disavowed data-point dependence, and is looking at the wider outlook and balance of risks, with downside risks to employment dominating since the July employment report.
"This is now a labor data-first Fed, not an inflation data-first Fed, and the incoming labor data will determine how aggressively the Fed pulls forward rate cuts," Guha noted.
The consumer price index reinforced the trend of disinflation and brought a degree of relief to markets still reeling after last week's meltdown.
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