Wall Street closed modestly higher Thursday after a report showed inflation slowed again last month, bolstering hopes the Federal Reserve may take it easier on the economy through smaller hikes to interest rates. The Dow rose 216 points, or 0.6%, to 34,189; the S&P 500 ticked up 13 points, or 0.3%, to 3,983; and the Nasdaq rose 69 points, or 0.6%, to 11,001. Small company stocks were outpacing the broader market, with the Russell 2000 up about 1.5%.
In the bond market, Thursday’s inflation report sent yields falling further as traders grow more convinced the Fed will downshift the size of its next rate increase. They’re now largely forecasting a hike of 0.25 percentage points next month, down from December's half-point hike and four prior increases of 0.75 percentage points. Many traders are betting on the Fed to follow that with perhaps another quarter-point hike, but to then potentially take a pause, according to data from CME Group.
Analysts cautioned that while Thursday’s inflation report did show inflation at its least debilitating level in more than a year, it still leaves room for continued pressure on the economy from high rates. They warned more big swings may still be to come for markets. “While we can safely say that we are past peak inflation, it is too early to call victory on the battle against higher inflation,” said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.
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