This morning, November 10, the Bureau of Labor Statistics reported that the annual inflation rate fell to 7.7% in October. That was below the 8.2% annual are in September and below the 7.9% annual rate project by economists surveyed by the Wall Street Journal.
The core rate, which strips out price increases in food and energy, fell to a 6.3% annual rate. That was down from 6.6% in September and below economists’ predictions of a 6.5% annual rate.
Bond prices rose and yields plunged on the report. The yield on the 10-year Treasury, for example, fell 23 basis points to 3.86% as of 2 p.m. New York time.
Stocks soared. As of 2 p.m., the Standard & Poor’s 500 was up 4.62% and the Dow Jones Industrial Average had climbed 3.02%. The NASDAQ Composite was higher by 6.19% and the NASDAQ 100 was ahead 6.17%. The small-cap Russell 2000 had gained 5.13%.
The driver for the stock and bond rally, of course, is expectations that a slowdown in inflation will lead the Federal Reserve to push rates only 50 basis points higher at its December 14 meeting, and then move sooner rather than later to pause its cycle of interest rate increases and relatively quickly pivot to cuts in interest rates.
The CME Fed Watch Tool, which uses prices in the Fed Funds Futures market to calculate the odds of a Fed move, saw the odds of “just” a 50 basis-point increase at the Fed’s December 14 meeting rise to 85.4% today from 56.8% yesterday. Odds of a 75 basis point increase fell to 14.6% today from 43.2% yesterday.