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Economic Report: U.S. inflation shows signs of easing, perhaps giving Fed ammo to go slower

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The numbers: The cost of living rose a relatively modest 0.4% in October, suggesting that inflationary pressures are finally beginning to wane.

Economists polled by The Wall Street Journal had forecast a 0.6% increase.

The yearly rate of inflation slipped to 7.7% from 8.2%. Inflation had peaked at a nearly 41-year high of 9.1% in June.

In another positive sign, the so-called core rate of inflation that omits food and energy rose just 0.3%. Wall Street had forecast a 0.5% gain.

The increase in the core rate over the past year slipped to 6.3% from a 40-year peak of 6.6% in the prior month.

The Fed views the core rate as a more accurate measure of future inflation trends.

Big picture: A surge in inflation to a four-decade high over the summer is slowing, but not fast enough for the Fed. The central bank worries inflation will become entrenched in the economy unless it’s brought to heel soon.

Yet the Fed’s main tool to squelch inflation — higher interest rates — also threatens to slow the economy to a crawl or even plunge it into recession. The bank has jacked up a key short-term rate to a top range of 4% from near zero in the spring.

Senior Fed officials are expected to raise interest rates again at their next meeting in December, but it’s unclear how much. They will see another CPI report ahead of their decision and that could sway how far they go.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.95%

and S&P 500
SPX,
-2.08%

were set to open sharply higher in Thursday trades. The interest rate on the 10-year Treasury note
TMUBMUSD10Y,
3.917%

sank below 4%.

Economic Report: Watch for CPI to show monthly inflation increase in October but possible cooling of price gains vs. year-ago benchmarks

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