CLA Outlook — Key Insights for Sound Financial Strategies
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August 18 Weekly Insights
CPI comes in below market expectations while PPI surprises to the upside
- The Consumer Price Index (CPI) rose by 0.2% in July, slightly below expectations, generating a year-over-year increase of 2.7%.
- The Producer Price Index (PPI) surged 0.9% during July, surpassing forecasts and raising its year-over-year increase to 3.3%.
- The jump in PPI was driven by higher costs in both goods and services amid tariff-related input cost pressures.
Markets digest inflation data well and focus on upcoming Federal Reserve rate cuts
- July’s mild CPI report stoked investor optimism about future interest rate cuts, while lifting the S&P 500 to new highs and driving small cap stocks up sharply.
- However, the higher-than-expected PPI has dampened some of that newly found investor enthusiasm, especially regarding the possibility for future rate cuts.
- Fixed income traders predict a 92.5% chance the Federal Reserve will cut rates at its September 17 meeting.
Looking ahead, why are the financial markets so focused on interest rate cuts?
- Interest rate cuts stimulate economic activity by lowering business costs and helping to expand the nation’s money supply through increased lending and multiplier effects.
- Cutting interest rates should increase money supply growth and liquidity, with more liquidity boosting business transactions.
- Increased liquidity should boost the value of venture capital and small cap stocks because they are often looking for capital infusions to fund future growth.
Develop strong financial strategies
Tune in to the second-quarter session of the CLA Outlook as we discuss timely topics around policy, the economy, and year-to-date market performance.
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