Big declines in headline and core inflation data for the month of October is triggering big bets on slower Fed rate hikes and a huge rally on Wall Street.
Updated at 8:44 am EST
U.S. inflation slowed notably last month, data from the Bureau of Labor Statistics indicated Thursday, sparking hopes of a pivot in the Federal Reserve‘s rate plans and trigger a massive move higher for U.S. stocks.
The headline consumer price index for the month of October was estimated to have risen 7.7% from last year, down from the 8.2% pace recorded in September and well south of the Street consensus forecast of 8.0%.
On a monthly basis, inflation was up 0.4%, the BLS said, compared to a 0.4% reading in September, a 0.1% reading in August and a flat reading in July. Street forecasts had projected a 0.6% acceleration.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.3% on the month, and 6.3% on the year, the report noted, with both the annual and monthly reading coming firmly below Street forecasts.
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On Wall Street, U.S. stocks reacted sharply to the softer-than-expected readings, with futures tied to the S&P 500 price for a 112 point opening bell gain while those linked to the Dow Jones Industrial Average were priced for a 795 point surge. Futures tied to the tech-focused Nasdaq were priced for a 450 point rally.
Benchmark 10-year Treasury note yields fell 15 basis points to 3.934% while 2-year notes slumped 18 basis points to 4.408%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, fell 0.75% to 109.73.
The CME Group’s FedWatch is pricing in an 80% chance of a 50 basis point Fed rate hike next month in Washington, up from 52% prior to the data release, with just a 19.4% chance for a fifth consecutive 75 basis point hike.
