Stocks had a great day yesterday. Yesterday's CPI data shows that inflation is cooling. All major indices had their biggest one-day gains since 2020.
The annual average inflation rate was 8.3% between September 2021 and 2022. However, October's CPI was 7.7%. Overall October's numbers show that inflation rose 6.3% in 12 months, excluding volatile energy and food prices.
Although yesterday's stock market rally was encouraging, there is still much to be done. Despite yesterday's huge numbers, the S&P 500 still has a 17.5% year-to-date decline. Nevertheless, investors believe yesterday's news is good.
In the last few weeks, the Fed suggested that rate hikes could be paused. The central bank must have a reason for doing so. With the most recent CPI data, they might have found one.
Powell had previously indicated that he didn't need lower inflation readings in order to slow down rate hikes. However, yesterday's data could provide the encouragement Powell is looking for.
Takeaway: The Fed's top priority in fighting inflation. The stock market will not recover fully until Jerome completes his job. However, yesterday's inflation data shows that the economy is moving in the right direction.