Americans and the Federal Reserve got some welcome news Thursday on inflation.
The Consumer Price Index rose 7.7% for the year ending in October, a much slower pace of increase than the 8% economists had expected and the lowest annual inflation reading since January.
The stock market skyrocketed on the news, with Dow futures surging by more than 800 points on hopes the Fed would dial back its aggressive rate hikes.
While Fed Chair Jerome Powell said earlier this month that the central bank still has “some ways to go” in its battle to tame inflation, sentiment is clearly growing that the Fed may be able to tap the brakes ever so slightly.
Fed funds futures are now pricing in a nearly 80% chance of a half-point increase, at the Fed’s December policymaking meeting, smaller than the three-quarters of a percentage point increases the Fed announced at the previous four meetings.
“Today’s CPI report shows inflation is moving in the right direction,” said Eric Merlis, managing director and co-head of global markets at Citizens. “The report provides ammunition for the Fed to begin pricing in sub-75-basis-point tightenings. This will be a welcome development for the Fed.”