Stock market today: Stocks rise as key inflation measure increases at slowest pace since 2021

US stocks edged mostly higher Wednesday as Wall Street embraced another encouraging signal on consumer prices that is set to help shape the near-term future of interest-rate policy. The S&P 500 ( ^GSPC ) rose 0.4%, while the tech-heavy Nasdaq Composite ( ^IXIC ) finished just above the flatline. The Dow Jones Industrial Average ( ^DJI ) gained 0.6%, or more than 200 points.

The Consumer Price Index (CPI) showed price increases held largely steady in July. Consumer prices rose 2.9% year-over-year in July, the first time headline inflation has dipped below 3% since 2021. On a "core" basis, stripping out costs of food and energy, prices rose 3.2% year over year. Both numbers largely met Wall Street forecasts.

Wall Street had rallied Tuesday on the back of positive inflation data that could foreshadow a similar direction in consumer prices. The Producer Price Index, which measures wholesale inflation in the US economy, rose just 2.2% year-over-year in July, nearly in line with the Federal Reserve's 2% target.

Together, the inflation signals could get the Fed closer to a rate cut. Even the most hawkish members of the Fed are signaling they need just a bit more good data to be ready to support an interest rate cut. More signs of cooling inflation, combined with a cooling job market, would likely leave the Fed positioned for a rate cut at its September meeting.

According to the CME FedWatch tool, traders are aligned on a Fed cut next month — the question is by how much. Around 36% of bets are on a bigger, 50 basis point cut, while the rest remain on a 25-point cut.