US stock futures rise but bonds slip as the Fed says it's set on more rate hikes despite cooling inflation

  • US futures picked up Friday but bonds slipped as investors weighed up the Fed’s response to cooling inflation.
  • US inflation cooled in July but Fed officials have said it’s still too high and that they’ll hike rates further.
  • The yield on the 2-year US Treasury note ticked higher in a sign that investors remain nervy about inflation and the Fed.

US stock futures rose Friday but bonds fell as investors weighed up the Federal Reserve’s likely response to cooling inflation, after officials said prices are still rising too quickly.

S&P 500 futures were up more than 0.5% after the benchmark US stock index slipped 0.07% the previous day. Dow Jones futures and Nasdaq 100 futures also rose.

In Europe, the continent-wide Stoxx 600 index climbed around 0.4% in early trading. China’s CSI 300 index slipped  but Tokyo’s Nikkei 225 jumped more than 2%.

However, US bonds fell, pushing yields higher, in a sign investors remain cautious about the outlook for inflation and interest rates. The yield on the 2-year US Treasury, which is the most sensitive to interest rates, climbed a basis point to more than 3.205%.

Investors were relieved on Wednesday when official data showed the US year-on-year inflation rate fell more than expected in July, to 8.5%. That’s down from June’s 40-year high of 9.1%.

However, Fed officials have been quick to say they want more evidence inflation is coming under control.

San Francisco Fed President Mary Daly told Bloomberg TV Thursday that inflation remains too high. “We’re seeing some improvement but they’re not victory,” she said.

Craig Erlam, senior market analyst at currency company Oanda, said: “The fact that inflation not only decelerated in the US but at a faster pace than the consensus forecasts was a double win and risk assets are feeling the benefit.”

Yet he added: “This isn’t something that’s going to sway the Fed at all even if it will ease the burden on the economy a little. The Fed will need to see broader signs of inflationary pressures softening to ease off the brake into year-end.”