FILE PHOTO: A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 30, 2025. REUTERS/Jeenah Moon/File Photo

By Johann M Cherian and Sanchayaita Roy

(Reuters) - Wall Street's main indexes were gearing up for a higher open on Tuesday, after data showed inflation rose broadly in line with expectations in July, putting the Federal Reserve on track to lower interest rates in September.

A Labor Department report showed that the Consumer Price Index (CPI) rose by an expected 0.2% on a monthly basis in July, while on an annual basis it increased 2.7% - a touch lower than the 2.8% economists were projecting.

However limiting the optimism, the report also suggested that underlying inflation rose by a more-than-expected 3.1% in the previous month as markets gauge the impact tariffs and trade uncertainty have had on the economy.

Yields on shorter-dated Treasury bonds - a reflection of interest rate expectations - moved lower after the data and interest rate futures showed traders continue to expect the Fed could lower interest rates by about 25 basis points in September with a 88.8% chance.

"The core message in core inflation is that any tariff-induced inflation is likely to be a process, not an event. Eventually, tariffs can show up in varying degrees in consumer prices, but these one-off price increases don't happen all at once," said Brian Jacobsen, chief economist at Annex Wealth Management.

"As long as breakeven inflation rates and other market based measures of inflation expectations stay contained, the Fed should feel comfortable enough to recommence cutting in September."

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

At 08:49 a.m. ET, Dow E-minis were up 268 points, or 0.61%, S&P 500 E-minis were up 39.25 points, or 0.61% and Nasdaq 100 E-minis were up 165 points, or 0.70%.

Futures tracking the domestically exposed small cap Russell 2000 index jumped 1.3%.

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

U.S. stocks that have touched record highs, boosted by better-than-expected earnings from technology majors, a detente between the U.S. and its top trade partners and on expectations of rate cuts.

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.

Among single stocks, Intel rose 3.5% in premarket trading as Trump praised CEO Lip-Bu Tan following their meeting on Monday, days after seeking Tan's resignation.

Palo Alto Networks gained 1.8% after brokerage Piper Sandler raised its rating on the cybersecurity stock to "overweight" from "neutral".

Shares of Circle Internet rose 11.5% after the stablecoin firm posted its second-quarter results, while Venture Global gained 5.7% as the LNG producer reported second-quarter revenue above estimates.

Hanesbrands soared 37% after a report said Canada's Gildan Activewear is nearing a deal to acquire the U.S. innerwear maker for about $5 billion, including debt.

U.S.-listed shares of On Holding climbed 15.9% after the sportswear maker raised its annual sales forecast.

(Reporting by Johann M Cherian in Bengaluru; Editing by Arun Koyyur and Maju Samuel)