Stocks rose as a result of bets that the upcoming consumer price index will show further softening, which could strengthen the case for the Federal Reserve to slow its rate hike pace — even though some officials say it's too soon to declare victory over inflation.
The equity market struggled to find direction following Jerome Powell's silence on the outlook for monetary policy at an earlier event on Tuesday. The choppy trading gave way to a rebound in afternoon New York trading, with the S&P 500 regaining its key 3,900 level. Treasury two-year US yields pared their gains, while the dollar remained unchanged.
According to JPMorgan's sales and trading desk, Thursday's inflation figures are likely to be lower than expected, helping stocks extend their bear-market rally. While the consensus expects December's CPI to fall to a 6.5% annualized rate, the bank's team, led by Andrew Tyler, sees a nearly two-in-three chance that the data will be within 10 basis points of the estimate, with a soft bias.
While Powell did not directly comment on the Fed's next steps at a Stockholm forum, he did say that "restoring price stability when inflation is high may require measures that are not popular in the short term as we raise rates to slow the economy." Fed Governor Michelle Bowman stated that the central bank needs to tighten further in order to control inflation.