Market Surge: U.S. Stocks Rally Amid Cooler Inflation and Fed Comments

U.S. stocks experienced a significant rally on Friday after a cooler-than-expected inflation report and dovish comments from Federal Reserve officials eased concerns over interest rates. Despite Friday's gains, all major U.S. indexes posted declines for the week amid fiscal policy uncertainties.

U.S. stocks rallied to conclude the trading week with a boost on Friday, following two subdued sessions. The rebound was attributed to a cooler-than-expected inflation report alongside comments from Federal Reserve officials that alleviated concerns regarding impending interest rate hikes. According to the Personal Consumption Expenditure (PCE) index, inflation rose by 2.4% annually in November, slightly below the 2.5% estimate as projected by economists polled by Reuters.

In a sign of economic resilience, consumer spending in November saw an uptick. As a result, traders are now slightly more optimistic about the likelihood of Fed rate cuts in 2025, anticipating the first in March and potentially another by October. Previously, only a 50% chance of a second rate cut by December 2025 was expected.

This week's market movement also reflected the Federal Reserve's announcement on Wednesday of its third interest-rate cut of the year. However, the Fed projected just two 25-basis point cuts in 2025, down from four in September, highlighting the economy's strength and persistent inflation. These projections initially led to a market sell-off, yet the cooler PCE index and supportive Fed commentary resulted in Friday's rally. Despite the day's gains, major indexes closed lower for the week, influenced by additional fiscal policy uncertainties such as tariffs.

(With inputs from agencies.)