Stocks rally after inflation data but close lower for the week

Stocks rally after inflation data but close lower for the week

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By Chuck Mikolajczak

NEW YORK (Reuters) -U.S. stocks rallied to close out the trading week on Friday after two lackluster sessions as a cooler-than-expected inflation report and comments from Federal Reserve officials eased worries about the path of interest rates.

The latest inflation report in the form of the Personal Expenditure (PCE) index showed a 2.4% rise in November on an annual basis, just below the 2.5% estimate of economists polled by Reuters.

Consumer spending increased in November in another sign of economic resilience.

After the data, traders raised their slightly increased expectations for Fed rate cuts in 2025, now expecting the first one in March and another by October. Before the data, traders saw a roughly 50% chance of a second rate cut by December 2025.

On Wednesday, the Fed announced its third interest-rate cut of the year but forecast in its summary of economic projections (SEP) just two 25-basis point cuts for 2025, down from its September view of four cuts, in a nod to the economy’s continued health and sticky inflation.

The announcement sparked a sharp sell-off late on Wednesday, which equities were unable to bounce back from on Thursday. Even with Friday’s rally, each of the three major U.S. indexes declined for the week.

Also providing support were comments from Fed officials, with some acknowledging they were starting to factor in fiscal policy uncertainty, such as tariffs, in their outlooks.

“It’s kind of obvious what’s going on – it’s just this PCE plus dovish Fed commentary offset the market overreaction to the hawkish cut that everybody was expecting,” said Jay Hatfield

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