Wall Street kicked off Wednesday on a positive note as November inflation data came in line with expectations, leaving traders confident in the likelihood of a Federal Reserve interest rate cut next week.
The Consumer Price Index rose 2.7% year-over-year in November, slightly above October's 2.6% annual rate, but perfectly aligned with economist forecasts. Core inflation, which excludes volatile categories like food and energy, remained flat at an annual rate of 3.3%, also meeting expectations.
Following the report, the probability of a 25-basis-point rate cut at the Fed's Dec. 18 meeting surged to 96%, up from 86% before the data release, as per CME FedWatch.
This leaves little doubt that investors are almost fully pricing in an easing move by the central bank, pushing back any fears of a potential pause.
Market Reactions: Stocks Rally, Treasury Yields Dip
Key equity indices reflected growing optimism:
In the bond market, Treasury yields fell across maturities:
- The 2-year Treasury yield, which is particularly sensitive to monetary policy moves, dropped 4 basis points to 4.10%.
- The benchmark 10-year yield declined by 2 basis points to 4.20%.
- The popular iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) ticked up 0.1%.
Meanwhile, the U.S. dollar index (DXY) – as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) – held steady.
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