Dow soars as investors welcome surprising inflation data

Wall Street’s main indexes jumped in volatile trading on Friday as a cooler-than-expected inflation report eased some market concerns triggered by the Federal Reserve forecasting only two rate reductions for 2025.

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In midday trading, the Dow Jones Industrial Average jumped 769 points, or 1.8%, to 43,113.

The S&P 500 climbed 1.7%, and the Nasdaq surged 1.8%.

The Fed’s hawkish shift has put the Nasdaq on track to fall for the first time in five weeks, with the S&P 500 on pace for its worst week in nearly six.

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The Dow was on track for its third weekly fall.

A Commerce Department report showed the Personal Consumption Expenditure index, the Fed’s preferred inflation measure, rose 2.4% in November on an annual basis, below estimates of 2.5%, as per economists polled by Reuters.

After the data, traders raised their rate cut bets for 2025, now expecting a rate cut first in March and then again by October. Before the data, there was about 50% chance of a second rate cut by December 2025.

Wall Street was jolted this week after the Fed forecast only two rate reductions in 2025 and raised its inflation estimate, in a nod to the economy’s continued resilience and still-high inflation.

“Before that Fed meeting, inflation wasn’t as much of a concern and then the Fed told us that we don’t think we’ve won that battle yet,” said Mike Dickson, head of research and quantitative strategies at Horizon Investments.

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“We have a lot more of balance between a healthy labor market and their (the Fed’s) concern for inflation. That makes this report a little more important than it was.”

Meanwhile, Congress was scrambling to avert a partial government shutdown before a midnight deadline, after more than three dozen Republicans rejected a demand by President-elect Donald Trump to use the measure to lift the nation’s debt ceiling.

“Potentially eliminating the debt ceiling is going to put some upward pressure on interest rates that played a bit of a role into how everything is trading,” Dickson said.

San Francisco Federal Reserve Bank President Mary Daly said this week’s decision to lower interest rates was a “close call,” and echoed Chair Jerome Powell’s view that caution is now warranted toward future moves.

FedEx jumped 3% after announcing the much-anticipated spinoff of its freight trucking division, as it restructures operations to focus on its core delivery business.

Eli Lilly  advanced 6.4% after Danish rival Novo Nordisk’s experimental next-generation obesity drug achieved lower-than-expected weight loss in a late-stage trial.