US stocks closed higher as the Personal Consumer Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred inflation gauge, rose as expected in August.
The PCE data rose 0.3% last month and 2.7% from a year earlier, in line with consensus estimates and remaining the Fed's preferred inflation measure.
The report also showed that trade tariffs imposed by President Donald Trump did not raise inflation as sharply as market participants had feared.
In addition, most investors now expect more interest rate cuts by the Fed in the coming months.
According to CME FedWatch, the market is pricing in a 90.8% chance of a 25 basis point cut in October, and a 63.8% chance of another 25 basis point cut in December.
The Dow Jones Industrial Average rose 0.65% to 46,247.29, the S&P 500 rose 0.59% to 6,643.70, and the technology-focused Nasdaq rose 0.44% to 22,484.07.
In other news, the US government's operating funds are set to expire on September 30, but members of Congress have yet to reach an agreement on new funding or a temporary extension.
Republicans are pushing for temporary funding until November, while Democrats are demanding the repeal of health care and certain spending cuts before passing a new resolution to avert a government shutdown.
Congressional leaders from both parties are scheduled to meet with Trump on Monday to discuss the issue. Trump also told Reuters that he believes Democrats want to reach an agreement.
A shutdown this week could delay the release of labor market data on Friday, as well as affect future data and economic activity.
