July PPI Flat, Below Expectations; Stocks, Gold, Silver in Limbo with Rates on Hold; Oil Flows Continue to Satisfy Demand for Now

Wednesday's July CPI report cooled hate hike expectations, and Thursday morning's PPI reading for July put a cherry on top as the release showed inflation at the producer level lower than expected.

As reported:

The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices edged down 0.1 percent in June and rose 0.5 percent in May. On an unadjusted basis, the index for final demand increased 4.7 percent for the 12 months ended in July.

In July, a 0.2-percent increase in the index for final demand services and a 2.2-percent advance in prices for final demand construction offset a 0.7-percent decrease in the index for final demand goods.

Prices for final demand less foods, energy, and trade services rose 0.4 percent in July after inching up 0.1 percent in June. For the 12 months ended in July, the index for final demand less foods, energy, and trade services advanced 4.7 percent.

While the annual figure of 4.7% is still high, it is down from the peak in March of 5.9%, suggesting that inflation is still rising, but the pace is slowing. That may not be exactly what consumers want to hear, but it is likely to bring joy to more than a few Wall Street trading desks.

The CME's FedWatch tool shows a 32% chance of a hike - to 3.75-4.00% - at the September FOMC meeting (34 days from now) and a 68% chance that the Fed will stand pat at 3.50-3.75%. It's a fool's game to bet against those odds given the current circumstances. There is practically no reason for the Fed to change policy in September, especially if August non-farm payrolls come in at a negative or below expectations. Nobody, except for maybe the three board members who voted for a rate hike in July, wants to take the punch bowl away in the middle of the expansion party. Price inflation will take care of itself as demand destruction and substitution meets ample supply.

While America's purchasing power gradually erodes, it affects only the "little people", resulting, in terms of overall monetary policy, grins and chuckles, because, the powers that be truly don't care much about the 90% of the population that pays taxes and buys groceries. The Fed looks at the bigger picture. With GDP running at 1.5% in the second quarter and likely to edge even lower for Q3 2026, elevated inflation is the least of their worries.

On the brighter side, the AI capex expansion is real and will be peaking later this year or at some time in the first half of 2027. It's at that point that the Fed will have to move, and the most likely direction would be lower rates, not higher.

Wall Street's reaction to the PPI reading was rather muted. It appears as if the table is set for August, with congress out of town and earnings season winding down. Further gains in stocks are likely to be hard to come by, if only because the market is sailing through economic doldrums.

Stocks are already at or close to record highs and are probably going a bit higher before the next pullback, which could come from any direction. Meanwhile, the midterms are shaping up well for Republicans if the economy holds and inflation doesn't bite as hard as some expected. There does not appear to be any near-term resolution to the Iranian crisis, but oil flows continue to hold. WTI crude is down two percent this morning, at $81/barrel. If the two sides in the Middle East refrain from shooting at each other over the next few weeks and months, prices should stabilize in the 70s.

Treasury yields have moderated, keeping the price of gold and silver in recent ranges.

At the Close, Wednesday, August 12, 2026:
Dow: 53,770.27, -21.58 (-0.04%)
NASDAQ: 26,588.49, +143.04 (+0.54%)
S&P 500: 7,748.50, +20.30 (+0.26%)
NYSE Composite: 24,758.62, +73.05 (+0.30%)