Stocks jolted higher on Thursday, after fresh data showed a moderation in inflation, bolstering investors’ hopes that the Federal Reserve may slow the pace of interest rates increases that have weighed on the market.
Futures on the S&P 500 jumped 3 percent.
The move followed a 2.1 percent loss for the index on Wednesday as control of Congress remained unclear after the midterm elections and turmoil erupted in cryptocurrency markets following the collapse of one of the largest crypto exchanges.
The new inflation data provided a tailwind for the market on Thursday, with consumer prices rising slower in October than economists had forecast.
The Consumer Price Index data is important in assessing the progress of the Fed’s efforts to reduce stubbornly high inflation by slowing the economy through higher interest rates, which have also contributed to the dramatic decline in the stock market this year.
However, speaking before the numbers released, some analysts and investors cautioned that it will take a more prolonged period of slowing inflation before the Fed stops raising interest rates.
Still, “it could be the first step to getting us to a better place,” said Ron Temple, the head of U.S. equity at Lazard Asset Management, speaking on Wednesday.
The Fed chair, Jerome H. Powell, took a hard line at the central bank’s meeting last week, saying that the job of lowering inflation was far from over. While rate increases in the coming months may not be as large as the bumper three-quarter-point moves of the past four Fed meetings, he said that over time rates could rise higher than investors had been expecting.
Having pushed expectations of future interest rate increases higher following Mr. Powell’s comments, investors reassessed their expectations after seeing the new inflation numbers.
Market expectations for where interest rates will move to next year dropped from a peak of over 5 percent to around 4.9 percent, as investors dialed back expectations of the number of interest rate increases to come.
The two-year Treasury yield, which is sensitive to changes in Fed policy, plummeted by more than 0.2 percent, to around 4.4 percent. The dollar also fell swiftly, down 1 percent against a basket of currencies that represent America’s major trading partners.
