Wall Street Hits Records on Encouraging Inflation Report

U.S. stocks ended last week hitting record highs after an update on inflation came in a bit less painful than feared.

Wall Street's numbers could also clear the way for the Federal Reserve to continue cutting interest rates. (Photo: New York Stock Exchange Facebook)

The S&P 500 rose 0.8% and topped its previous all-time high, set earlier this month. The Dow Jones Industrial Average rallied 472 points, or 1%, and the Nasdaq composite climbed 1.1%. Both also set records, Stan Choe reported for the Associated Press (AP).

The inflation data were encouraging because they could mean less strain on lower- and middle-income households struggling with persistently high prices.

More importantly for Wall Street, the numbers could also clear the way for the Federal Reserve to continue cutting interest rates in hopes of boosting the slowing job market.

The Fed cut its main interest rate last month for the first time this year but has been hesitant to promise further relief, since lower rates can make inflation worse even as they stimulate the economy and lift asset prices.

Following Friday’s inflation report, traders are betting with near certainty that the Fed will cut rates at its next two meetings, including one next week.

“Right now, Fed officials are more concerned about the labor market than about inflation,” said Brian Jacobsen, chief economist at Annex Wealth Management.

“Without any evidence to the contrary, there’s nothing to really change their minds about cutting.”

Stocks had been shaky in recent weeks following a massive rally of 35% for the S&P 500 from a low in April. Critics have warned that stocks have become overvalued, with prices rising much faster than corporate profits.