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Dow and S&P 500 End at Records as Inflation Moderates but Remains High

Inflation eases slightly in July, suggesting to investors the Fed likely will refrain from pulling back on economic support anytime soon.

Stocks ended mostly higher Wednesday after data showed U.S. inflation moderated slightly in July, suggesting to investors the Federal Reserve likely will refrain from pulling back on economic support anytime soon.

The Dow Jones Industrial Average finished up 220.30, or 0.62%, to 35,484.97, and the S&P 500 gained 0.25% to 4447.70. The Dow and the S&P 500 set record closing highs Wednesday.

The Nasdaq declined 0.16% as investors rotated out of stocks in the sector. 

The yield on the benchmark 10-year Treasury was falling Wednesday to 1.327% as bonds rallied following a government auction of 10-year notes that saw strong demand. 

The Consumer Price Index rose 0.5% in July, down from June's 0.9% pace. CPI rose 5.4% year over year, a tad higher than economists' estimates of 5.3%.

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"While the data should reassure markets that inflation isn’t on a relentless upward trend, make no mistake - this inflation report is still hot," said Seema Shah, chief strategist at Principal Global Investors.

"The Fed should consider this as yet more evidence of 'substantial' progress towards their goals, and surely a deep-dive discussion into tapering will be on the top of their agenda at the September (Federal Open Market Committee) meeting," Shad added.

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Fed officials have been discussing in recent days just when the central bank might begin its tapering of bond purchases. The Fed has been buying $120 billion a month in Treasury, agency and mortgage bonds to keep interest rates low and support the economy during the pandemic.

Atlanta Federal Reserve Bank President Raphael Bostic said earlier this week that the Fed's tapering of bond purchases could begin in the fourth quarter. Chicago Fed President Charles Evans, however, said Tuesday he wasn't yet ready to support pulling back stimulus and would first "like to see a few more employment reports."

The central bank has said it expects to keep rates near zero until the labor market reaches "maximum employment" and inflation runs above its 2% target.

Elsewhere, oil prices finished higher Wednesday after data showed a decline in U.S. crude inventories last week. Oil was pressured earlier in the session after the United States urged OPEC and its allies to boost supply. 

Senate Democrats, meanwhile, passed a $3.5 trillion budget framework, a day after the Senate approved a $1 trillion bipartisan infrastructure package.

Shares of Coinbase Global  (COIN)  rose Wednesday after the largest U.S. cryptocurrency exchange topped second-quarter earnings and sales estimates and reported a surge in dealing volumes.

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Bitcoin, meanwhile, rose above $46,300, steadily recovering from year-to-date losses and climbing toward previous highs as both institutional and retail investors resumed buying the world’s biggest cryptocurrency.