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US stocks and bonds rose after data published on Wednesday showed fundamental price pressures in the world's largest economy eased more than expected, prompting investors to bet on faster interest rate cuts this year.
Figures from the Bureau of Labor Statistics show headline annual inflation rose in line with expectations to 2.9 percent in December from 2.7 percent in November.
But basic Economic inflationInterest rates, which exclude volatile food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent the previous month.
US stocks and Treasury bonds Acquired after the release of the data. Markets have fallen in recent weeks as investors scaled back their expectations for interest rate cuts by the Federal Reserve in anticipation of President-elect Donald Trump's economic policy, which some fear will be inflationary.
“Today’s CPI should provide a boost to markets, alleviating some concern that the US is in the early stages of a second wave of inflation,” said Seema Shah, chief global strategist at Principal Asset Management.
Stocks and government bonds rose sharply after inflation data on Wednesday.
The Standard & Poor's 500 rose 1.6 percent in morning trading, while the Nasdaq Composite, which is dominated by technology stocks, jumped 2.2 percent. The gains put stocks on track for their best day since November 6, after Trump won the US presidential election.
The policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, lost 0.08 percentage point to trade at 4.28 percent, while the 10-year bond yield – a benchmark for global borrowing costs – fell 0.13 percentage point to 4.66 percent. . Returns fall as prices rise.
The dollar measure fell against six peers by 0.4 percent.
As of Wednesday morning, investors were betting that the Fed would implement its first quarter-point rate cut of the year in July, compared to September before the data was released.
Fed officials have indicated they plan to take a “cautious approach” to cutting interest rates amid concerns that inflation may not fall quickly to the central bank's 2 percent target.
Mark Cabana, head of US interest rate strategy at Bank of America, said the inflation numbers, particularly the core figure, would likely “modestly increase” the Fed's confidence that inflation will continue to decline. But he added that policymakers may “remain generally frustrated by the slowdown in the pace of progress on the inflation front.”
Most investors and analysts believe the Fed will not cut interest rates again at its next policy meeting later this month. US central bankers have indicated in their own forecasts that they will only cut interest rates by another 50 basis points this year.
Trump, who takes office on Monday, has made bold plans to impose tariffs on a wide range of imports, implement a massive crackdown on illegal immigrants and enact sweeping tax cuts.
Economists have warned that such plans could lead to increased inflation.
“The real question mark over inflation this year is not about what the economy can do to inflation or what the trend was before the Trump administration took office,” said David Kelly, chief global strategist at JPMorgan Asset Management. “It's what will new policies on tariffs, immigration and fiscal policies mean for inflation?”
