Wall Street surged on its best day in years, with the Dow gaining nearly 1,200 points and the NASDAQ up more than 750 points.
The rally started after a report showed inflation slowed by more than expected last month.
Traders took the data as a sign the worst of inflation has passed The good news on inflation spurred hopes the Federal Reserve won’t have to be so aggressive about raising interest rates.
It’s already raised its key rate to a range of 3.75% to 4%, up from virtually zero in March.
Those hikes have been the main reason for Wall Street’s troubles this year.
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 way for the Fed to return to the more typical increases of 0.25 percentage points before pausing hikes completely.
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.
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