Dow Jumps 900 Points on Cooler Inflation Data, but Experts Warn of ‘Disappointment’ as Fight Against Soaring Prices Is Far From Over

Traders work on the floor of the New York Stock Exchange in New York City, on Oct. 17, 2022. (Brendan McDermid/Reuters)

Wall Street’s main equities indexes jumped on the opening bell Thursday as investors bet that lower-than-expected inflation data would prompt the Federal Reserve to ease off on rate hikes. But experts warn it’s far too soon to declare victory in the fight against soaring prices and that investors should brace for more “disappointment.”

At the opening bell, the Dow Jones Industrial Average rose 749.97 points, or 2.31 percent, to 33,263.91. The S&P 500 Index opened higher by 111.32 points, or 2.97 percent, at 3,859.89, while the Nasdaq Composite gained 515.99 points, or 4.98 percent, to 10,869.17, at the opening bell.

At the time of reporting, the Dow was up 905 points as investors continued to digest the newest inflation data, which showed the Consumer Price Index (CPI) advancing by an annual 7.7 percent in October compared to market forecasts for 8.0 percent.

But Greg McBride, chief financial analyst at Bankrate, told The Epoch Times in an emailed statement that even though the inflation data were better than investors expected, it doesn’t mean the fight against price pressures is over.

“If this constitutes improvement, we’ve set a very low bar,” McBride said, adding that “the pervasiveness of price increases remains problematic.”

Relief for Households Still a Ways Off

Meanwhile, categories of basic necessities like food, energy, and shelter saw meaningful increases.

Grocery store prices rose 12.4 percent year over year, energy prices rose 17.6 percent in annual terms, while shelter costs advanced at an annualized pace of 6.9 percent.

“The areas posting declines are for the most part either irregular or more discretionary in nature—airfare, used cars, and apparel,” McBride said. “Any meaningful relief for household budgets is still somewhere over the horizon.”

Overall, the CPI report reinforces the view expressed repeatedly by Fed Chair Jerome Powell and other central bank policymakers that interest rates need to keep going higher to quash inflation.

“Inflation has run far hotter for far longer than expected, and we have yet to string together any kind of winning streak. With additional reports on inflation and inflation expectations in the coming days, and another CPI report before the December Fed meeting, there is plenty of opportunity for further disappointment,” McBride said.

More Upside for Inflation?

In a similar vein, Peter Schiff, chief economist at Euro Pacific Capital, said that inflation remains far above the Fed’s 2 percent target, while predicting more upside for prices.

“The #Fed is making no progress on reducing #inflation to 2%. Oct. #CPI rose .4%. That annualizes to an inflation rate of 5%, more than double the Fed’s goal. Negative real interest rates, soaring budget deficits, and a weakening dollar will soon drive year-over-year CPI gains to new highs,” he said in a post on Twitter.

Even the White House has sought to temper expectations that the fight against inflation had hit a watershed moment.

President Joe Biden said during a press conference on Wednesday that he “can’t guarantee that we’re going to be able to get rid of inflation,” though he added that he thinks “we can.”

Biden struck a similar tone on Thursday while commenting on the CPI data.

“It will take time to get inflation back to normal levels—and we could see setbacks along the way,” he said in a statement.

Still, the softer-than-expected CPI print spurred hopes among investors that the Fed might scale down the size of its future interest-rate hikes.

A week ago, federal funds futures contracts put the odds of another hike of 75 basis points in December at 48 percent. Currently, those odds have dropped sharply to 19.4 percent.

Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, told Reuters that the softer inflation print is “a good sign” for Fed policymakers.

“Given just this data, it would allow the Fed to raise rates by only 50 basis points rather than 75 at the next meeting,” he said.

A week back, the odds of a smaller 50 basis-point hike during the Fed’s December policy meeting stood at 52 percent—which now has risen to 80.6 percent.