Stocks rise after Fed acknowledges 'disinflationary process has started'

But recent gauges show that wage growth is slowing. The Fed's hike was announced one day after the government reported that pay and benefits for America's workers grew more slowly in the final three months of 2022, the third straight slowdown. That report might help reassure the Fed that wage gains won't fuel higher inflation.

And in December, overall inflation eased to 6.5% in December from a year earlier, down from a four-decade peak of 9.1% in June. The decline has been driven in part by cheaper gas, which has tumbled toSupply-chain backups have also largely been cleared, leading to a drop in prices for manufactured goods. Used car prices, having skyrocketed in the pandemic amid an auto shortage, have now fallen for several months.

"My base case is that the economy can return to 2% inflation without a really significant downturn or really big increase in unemployment," Powell said."That's a possible outcome. I think many forecasters would say it's not the most likely outcome, but I would say there's a chance of it."Others in the market are not as optimistic.

One area influencing expectations for the Fed is the job market, which has remained resilient despite all of last year's rate hikes. While strength there helps workers, a worry is that it could lead to too-high gains in wages that give inflation more fuel.Reports on Wednesday gave a mixed picture on hiring. Private payrolls rose by 106,000 in January, according to ADP. That's a slowdown from growth of 253,000 a month earlier, and it was well below the 170,000 that economists expected.

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