Wall Street Wobbles Following Run-Up Into Inflation Report

NEW YORK (AP) -- Wall Street is wobbling Thursday as markets digest a report showing inflation slowed again last month, bolstering hopes the Federal Reserve may take it easier on the economy through smaller hikes to interest rates.

The S&P 500 was 0.2% higher in early trading after flipping between gains and losses. It's still holding onto a solid gain for the week after rallying in anticipation of Thursday's report, one that investors hoped would show a continued cooldown in inflation from its summertime peak. The report did show that and was exactly in line with economists' expectations on many points, but analysts said it was still mixed and warned investors not to get carried away.

The Dow Jones Industrial Average was up 88 points, or 0.3%, at 34,061, as of 10:11 a.m. Eastern time, and the Nasdaq composite was 0.2% higher. They also were drifting between small gains and losses.

The nation's painfully high inflation has been at the center of Wall Street's wild movements for more than a year. Recently, stocks have been rising and bond yields have been falling on hopes inflation's cooldown may get the Federal Reserve to ease off its barrage of rate hikes. Such increases can stifle inflation, but they do so by slowing the economy and risk causing a recession. They also hurt investment prices.

In the bond market, Thursday's inflation report sent shorter-term yields falling further as traders increased bets for the Fed to downsize the size of its next rate increase. They're now largely betting on a hike of just a quarter percentage point next month, down from last month's half-point hike and from four prior increases of 0.75 percentage points.

Analysts cautioned that while Thursday's inflation report hit did show inflation at its least debilitating level in more than a year, it still leaves room for continued pressure on the economy from high rates. They warned more big swings may still be to come for markets.

"While we can safely say that we are past peak inflation, it is too early to call victory on the battle against higher inflation," said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

Analysts also warned investors not to think of slower rate hikes as the same thing as cuts to interest rates, something some investors hope may happen later this year. Such cuts can act like rocket fuel for markets.

Even though inflation slowed to 6.5% last month from its peak of more than 9% in June, it's still far too high for the Fed's -- and U.S. households' -- liking. The central bank has been adamant that it plans to continue raising rates this year and that it sees no rate cuts happening until 2024 at the earliest. Of course, its forecasts have proven to be very wrong in the past, such as when officials called the initial burst of inflation a "transitory" problem.

The yield on the 10-year Treasury, which helps set rates for mortgages and other economy-dictating loans, fell to 3.53% from 3.54% late Wednesday. The two-year yield, which tends to more closely track expectations for the Fed, fell to 4.17% from 4.22%.