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Inflation Slows in October Fueling Stock Market Rally

Thursday's positive economic report ignited a stock market rally as investors are hopeful the Fed may reduce its next interest rate hike.
Inflation Slows in October Fueling Stock Market Rally

Fresh economic data released Thursday showed that inflation cooled more than expected in October, a hopeful development for American consumers and welcome news for the Federal Reserve and White House after months of stubbornly persistent price increases, reports the New York Times.

October Inflation Report: Price Pressures Show Signs of Cooling (New York Times)

Excerpt from the New York Times: While inflation is still rapid and painful for many households, it is finally beginning to show signs of turning a corner. The Consumer Price Index slowed to a 7.7 percent gain in the year through October, less than the 7.9 percent that analysts had expected and down from 8.2 percent in the year through September. After stripping out food and fuel costs, both of which jump around, prices rose by 6.3 percent on an annual basis, down from 6.6 percent in the prior reading. And that core inflation measure pulled back sharply on a monthly basis, posting its slowest increase in more than a year. The report provides early evidence that the Fed’s campaign to slow rapid inflation may be helping to ease price pressures, working alongside recent healing in supply chains. 
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Stocks surged in their biggest rally in two years on Thursday, after a better-than-expected inflation report showed that the galloping price increases that consumers have endured all year are beginning to slow, writes NPR.

Stock market surges after inflation report shows the pain of high prices may ease (NPR)

Excerpt from NPR: The Dow Jones Industrial Average rose 1200 points, or more than 3.7%, over the course of the day to close at 33,715.37, the highest since the middle of August. The Nasdaq soared more than 7% and the S&P 500 more than 5%. Wall Street greeted the report as as a sign that the Federal Reserve may ease up on the gas in its current drive to contain inflation. The Fed has been raising rates aggressively in an effort to tamp down demand and bring prices under control. After ordering jumbo rate hikes of 0.75 percentage points at each of its last four meetings, the Fed is widely expected to adopt a smaller increase of 0.5 points when policymakers next meet in December.
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According to the Wall Street Journal, the October inflation report is likely to keep Federal Reserve officials on track to approve a half-percentage-point interest-rate increase next month, stepping down from the recent pace of unusually hefty rate rises.

“We’ve seen a little bright spot on the data today, but again, I can’t reiterate enough that one month of positive data on inflation does not a victory make,” said San Francisco Fed President Mary Daly during a webinar Thursday.

Inflation Report Leaves Fed on Track for 0.5-Point Rate Rise in December (Wall Street Journal)

Excerpt from the Wall Street Journal: The Fed approved last week its fourth consecutive rate increase of 0.75 percentage point, raising the benchmark federal-funds rate to a range between 3.75% and 4%. Thursday’s report does little to clarify that debate, but it offered a glimmer of encouragement to investors that interest rates wouldn’t have to rise to levels significantly above 5%. Some officials have indicated they would prefer to see a series of lower inflation readings before pausing rate increases, and Thursday’s reading allowed that clock to restart. Fed officials have been looking for signs that inflation might ease. But after disappointing readings in August and September that showed price pressures were broader and more persistent, they penciled in plans to raise interest rates to higher levels next year and delayed until next month any slowdown in the pace of increases. Thursday’s report ignited a rally in financial markets because it hinted to investors that the Fed might not have to raise rates quite as high as previously anticipated to bring inflation down.
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