This article first appeared on GuruFocus.

U.S. stocks, including the SPDR S&P 500 ETF Trust (SPY), received another potentially supportive inflation signal after July consumer-price data further reduced the odds of a Federal Reserve rate hike in September. Pantheon Macroeconomics said cooling services inflation should outweigh renewed pressure in goods, strengthening the case for the Fed to keep rates unchanged through the rest of 2026.

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Headline CPI rose just 0.1% in July, helped by a 2.9% drop in gasoline prices and slightly lower grocery prices. Core CPI increased 0.22%, but Pantheon argued several major contributors, including airline fares and medical services, have less direct influence on the Fed's preferred core PCE inflation gauge.

Economists Samuel Tombs and Oliver Allen called the report just soft enough to reduce the likelihood of a 25-basis-point September tightening.

The encouraging signal came from services. Core services prices excluding shelter increased 0.33%, but their annual inflation rate slowed to 3.0%, the lowest since October 2023. Pantheon expects easing wage growth, weaker air-travel demand and lower airline fares to keep that trend moving downward.

Goods remain the complication. Core goods prices climbed 0.2%, their strongest increase since September, while computer and peripheral prices surged 3.5%. Pantheon expects another 0.2% monthly increase in core goods prices in both August and September.

Still, the firm forecasts July core PCE inflation of only 0.16%, which would lower its annual rate to 3.2% from 3.3%.

For equity investors, the key implication is that the immediate threat of another Fed tightening cycle appears to be fading.

Pantheon expects the Fed to leave rates unchanged for the remainder of 2026 as cooling services inflation offsets firmer goods prices. That backdrop could support valuations for rate-sensitive growth stocks if inflation continues moving lower without a sharp deterioration in economic activity.

The next major test is August CPI, released shortly before September's Fed meeting. Investors should watch core goods inflation, energy-price pass-through and labor-market weakness closely. A surprisingly hot monthly inflation reading could revive tightening fears, while another benign core PCE print would strengthen the case that policy rates have peaked.