Wall Street's main indexes rose Tuesday, with the S&P 500 and the Nasdaq at record highs after data showed inflation rose broadly in line with expectations in July, bolstering expectations that the Federal Reserve could lower interest rates next month.

A Labor Department report showed that the Consumer Price Index (CPI) rose by an expected 0.2% on a monthly basis in July, while annual inflation came in slightly below forecasts, drawing calls from President Donald Trump to lower interest rates.

However, there was also some caution, as the data suggested that underlying inflation rose by its fastest pace in six months in July as markets look for signs that tariffs and trade uncertainty were filtering into prices.

Yields on shorter-dated Treasury bonds — a reflection of interest rate expectations - slipped and interest rate futures showed traders are giving an 88.8% chance that the Fed could lower interest rates by about 25 basis points in September.

"This is still early innings of this process and just as the Fed will be beginning to cut rates in the autumn, that's when the inflation data will probably start to be registering some of these more direct tariff price increases and it's going to complicate the rate-cutting decision," said John Velis, a macro strategist at BNY.

The data also comes at a time when there are growing concerns over the quality of economic data, weeks after Trump fired the head of the Bureau of Labor Statistics following downward revisions to previous months' nonfarm payrolls counts.

At 12:00 p.m. ET, the Dow Jones Industrial Average rose 465.62 points, or 1.06%, to 44,440.71, the S&P 500 gained 55.29 points, or 0.87%, to 6,428.74 and the Nasdaq Composite advanced 212.21 points, or 0.99%, to 21,597.61.

Nine of the 11 S&P 500 sectors were higher, with communication services in the lead after a 1.7% rise. Alphabet rose 1.2% as Perplexity made a $34.5 billion cash offer to buy the company's Chrome browser.

Further providing some relief, U.S. and China extended their tariff truce until November 10, staving off triple-digit duties on each other's goods.

U.S. stocks have rallied in recent weeks, putting the benchmark S&P 500 on track for its first record high close in nearly two weeks on the back of strong tech earnings, easing trade tensions and rate cut expectations.

Reflecting the confidence, data from BofA Global Research showed that inflows into U.S. stocks last week were the largest in two years.

Markets are monitoring developments around Trump's nominee E.J. Antoni to the Bureau of Labor Statistics commissioner post and potential candidates for the Fed's top job.

Meanwhile, the Russell 2000 index, tracking small-cap companies, also advanced 2.1% to hit a two-week high.</p> <p>An index tracking airline stocks surged 7.9%, putting it on track for its biggest one-day rise in over a month after data showed air fares rose 4% in July.

Cardinal Health dropped 7% after the drug distributor said it will buy healthcare management firm Solaris for $1.9 billion.

Advancing issues outnumbered decliners by a 3.31-to-1 ratio on the NYSE and by a 2.3-to-1 ratio on the Nasdaq.

The S&P 500 posted 20 new 52-week highs and 11 new lows, while the Nasdaq Composite recorded 70 new highs and 75 new lows.