US inflation broadly slows, erasing bets on more Fed Rate hikes

U.S. inflation broadly slowed in October, which markets cheered as a strong indication that the Federal Reserve is done hiking interest rates.

The so-called core consumer price index, which excludes food and energy costs, increased 0.2% from September, according to government figures. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure was little changed, restrained by cheaper gasoline.

Despite some bumps in recent months, inflation has settled substantially from a 40-year high reached last year. That's led several Fed policymakers to signal that they may be done raising interest rates, but Chair Jerome Powell has repeatedly stressed the central bank could hike again if needed.

The S&P 500 index opened higher and Treasury yields declined significantly as traders essentially wiped out the chance of another rate hike. They also pulled forward bets of when the Fed will first cut rates into the first half of next year.

"The bar for further rate hikes is getting higher and higher," Wells Fargo & Co. Chief Economist Jay Bryson said on Bloomberg TV after Tuesday's report. "This is a good start in that journey, but you would need to see a few more months of 0.2 before saying mission accomplished."

The Bureau of Labor Statistics figures reflected increases in rent and personal-care products and services, as well as health insurance due to a methodological change in how the government calculates it. Meanwhile, airfares and used-car prices declined.

Shelter prices, which make up about a third of the overall CPI index, climbed 0.3%, half the prior month's pace. Economists see a sustained moderation in this category as key to bring core inflation down to the Fed's target. A key measure of rent as well as hotel stays stepped down.

Excluding housing and energy, services prices climbed 0.2% from September and 3.7% from a year ago - the lowest in nearly two years - according to Bloomberg calculations.