NEW YORK (AP) — Stocks are bursting toward their best day in years Thursday as exhilaration sweeps Wall Street and financial markets worldwide after a report showed inflation in the United States slowed last month by even more than expected.
The S&P 500 was 4.1% higher in morning trading, and the encouraging data also sent prices leaping in markets for everything from metals to European stocks. Even bitcoin clawed back some of its steep plunge from prior days caused by the crypto industry’s latest crisis of confidence.
Investors took the data as a sign that the worst of high inflation may finally be behind us, though analysts cautioned it was still premature to declare victory.
All the action stemmed from a U.S. government report showing that inflation slowed in October for a fourth straight month since it hit a peak of 9.1% in June. The reading of 7.7% was even better than economists were expecting.
Perhaps more importantly, inflation also slowed more than expected after ignoring the effects of food and energy prices. That’s the measure the Fed pays closer attention to. So did inflation between September and October.
Slower inflation could keep the Fed off the most aggressive path in raising interest rates. It’s already raised its key rate to a range of 3.75% to 4%, up from virtually zero in March.
By raising rates, the Fed is intentionally trying to slow the economy and jobs market in hopes of undercutting inflation, which hit a four-decade high in the summer. The risk is that it can create a recession if it goes too far, and higher rates drag down on prices for stocks and other investments in the meantime.
Slower inflation could get the Federal Reserve to downshift the size of its rate hikes at its next policy meeting in December, after it pushed through four straight mega increases of 0.75 percentage points. That could open the door to the Fed getting back to the more typical sized increases of 0.25 percentage points.
Following Thursday’s inflation report, traders increasingly shifted into bets for the Fed to raise rates by only 0.50 percentage points next month, instead of a bigger hike.
While Thursday’s report on inflation was an encouraging sign, analysts also cautioned the Fed’s campaign against high inflation is likely still far from over. Inflation data has also given false hope before, only to reaccelerate again.
Stocks have swung sharply this week, with several factors pushing the market both up and down. On one hand, investors hope Tuesday’s elections may result in a Washington where control is split between Democrats and Republicans. That could prevent the kind of sweeping economic changes that make investors nervous, but the outlook for that is still uncertain as votes are still being counted.
Huge losses in the crypto world, meanwhile, were threatening to spill over into other markets and at least dent confidence among investors. Bitcoin was sitting below $16,500 shortly before the inflation report, down from roughly $20,000 a week ago and nearly $69,000 a year ago. It jumped back toward $17,500 after the inflation report.
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