Stocks Surge as Cooling Inflation Vindicates Fed's Aggressive Actions

The major U.S. equity indexes are rallying strongly Tuesday after a lower-than-expected 0.1% rise in the producer price index for July validated the Federal Reserve's tight monetary policy stance. The S&P 500 is up over 1%, while the tech-heavy Nasdaq has spiked 1.5% higher.

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The tame reading on wholesale inflation, following last month's surprise drop in consumer prices, indicates the Fed's front-loaded interest rate hikes are succeeding in reining in stubbornly high price pressures without crashing the economy. This has reinvigorated investor hopes that the central bank can pause its hiking cycle after the September meeting.

While markets had become oversold in recent weeks, the upbeat inflation data may represent the "true flush" that analysts say will usher in a sustained rebound. The rally demonstrates faith that the Fed's tough love approach of aggressively tightening policy will ultimately pay dividends by restoring price stability.

The Dow has also joined the broad-based advance, shaking off earlier weakness driven by Home Depot's reduced sales outlook as the home improvement sector contends with higher mortgage rates.

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