Stock futures were sharply higher on Wednesday morning after the release of a key inflation report that came in lighter than expected.
The Dow Jones Industrial Average futures were up 400 points, or 1.2%, while the S&P 500 futures were up 1.4% and the Nasdaq 100 futures were up 1.8%.
The release of the Consumer Price Index (CPI) report was the main event on the economic calendar on Wednesday. The CPI is a measure of inflation, and economists were expecting it to show that prices were rising at a faster pace in June.
However, the CPI report showed that prices actually rose 0.3% in June, which was below the consensus forecast of 0.4%. The annual rate of inflation also slowed to 5.4% in June, from 5.7% in May.
The lower-than-expected inflation reading sent stocks higher, as investors interpreted it as a sign that the Federal Reserve's efforts to cool inflation are starting to have an impact.
"The CPI report was a bit of a relief for investors," said Michael James, managing director of equity trading at Wedbush Securities. "It showed that inflation is starting to come down, and that's good news for the Fed."
The Fed is expected to raise interest rates by 75 basis points at its meeting later this month in an effort to bring inflation under control. However, the lower-than-expected inflation reading could give the Fed some room to pause its rate-hike campaign in the coming months.
"The Fed may not have to be as aggressive in raising rates as some have feared," said James. "That's good news for stocks."
The stock market has been volatile in recent months as investors have grappled with rising inflation and the prospect of a recession. However, the lower-than-expected inflation reading could provide some relief to investors and help to stabilize the market.
