Wall Street saw a big rally as fresh inflation and job data gave investors hope that the Federal Reserve may soon start cutting interest rates. The latest Consumer Price Index (CPI) showed inflation is still above the Fed’s 2% target, but not rising too fast. At the same time, jobless claims jumped to their highest level since 2021, suggesting the job market is slowing down.

This combination of mild inflation and weaker employment data has strengthened expectations that the Fed will cut interest rates by 25 basis points at its next meeting. Many analysts believe this could be just the first of multiple cuts this year.

Bond yields dropped as a result, with the 10-year Treasury briefly falling below 4%. Stocks soared across the board — the S&P 500, Nasdaq, and Dow Jones all hit record highs. Smaller companies also gained ground, with the Russell 2000 index jumping nearly 2%.

Gold surged past its inflation-adjusted all-time high from 1980, while oil and energy stocks moved lower. Adobe offered a strong earnings outlook, giving more fuel to tech optimism.

Experts say the focus is now shifting from inflation to the weakening labor market. While inflation is still important, it’s no longer the main concern. Instead, the Fed may prioritize protecting jobs and supporting economic growth.

Many economists expect the Fed to cut rates next week and possibly again in October and December. Some even think a more aggressive 50 basis-point cut could be discussed, although that’s seen as less likely for now.

The new CPI report showed core prices (excluding food and energy) rose 0.3% from July, while overall prices climbed 0.4%, the largest jump since early this year. Jobless claims rose by 27,000 to 263,000 in early September — the highest in nearly four years.

Despite these signs of weakness, some analysts caution against expecting too much too soon. Inflation is still sticky in some areas, and it’s not clear whether the Fed can safely cut rates multiple times without risking a return of rising prices.

The central bank faces a tough balancing act between keeping inflation under control and avoiding a major slowdown in jobs and spending. Investors are now watching closely to see how many rate cuts might come before year-end.

Meanwhile, financial markets are already pricing in more aggressive rate cuts ahead. Traders expect the Fed to lower rates several times through December. Bond yields reflect this shift, particularly at the front end of the yield curve.

As for stocks, optimism is building. Analysts are revising their forecasts higher for the S&P 500, expecting that rate cuts could boost growth and earnings into 2025. Some are even talking about a potential “melt-up” — a rapid surge in stock prices.

Corporate news added more fuel to the rally. Adobe’s strong outlook highlighted how AI investments are paying off. Micron Technology gained on hopes for strong AI-driven data center demand. Opendoor Technologies surged after bringing back its co-founders and naming a new CEO.

Other companies made headlines too: Delta and American Airlines are expanding premium seating; Kroger raised its sales forecast; Infosys announced a big share buyback; and Boeing warned of delays with its long-awaited 777X aircraft.

Meanwhile, regulators are asking top AI firms like Google, Meta, and OpenAI to explain how their tools affect children. This could signal more oversight in tech going forward.

Stock market indexes closed strong:
– S&P 500 rose 0.8%
– Nasdaq 100 gained 0.6%
– Dow Jones climbed 1.4%
– Russell 2000 jumped 1.8%

In currency markets:
– The US dollar weakened slightly
– The euro and British pound both gained ground
– Japanese yen edged up

Crypto markets also saw gains:
– Bitcoin rose 0.7%
– Ethereum increased by 2.1%

In bond markets:
– 10-year Treasury yield fell to around 4.02%
– 30-year yield dropped five basis points to 4.65%

Commodities were mixed:
– Oil prices fell by more than 2%
– Gold held steady near record highs

Looking ahead, investors will be focused on what Fed Chair Jerome Powell says at next week’s press conference. The central bank’s updated economic projections will also provide clues about future policy moves.

The big question now is not just whether the Fed will cut — but how far and how fast those cuts will go as inflation cools and job growth slows.