Stock and bond ETFs jumped higher Wednesday after the U.S. government reported that core consumer prices rose less than expected last month.

The SPDR S&P 500 ETF Trust (SPY) soared as much as 1.9%, while the iShares 20+ Year Treasury Bond ETF (TLT) jumped as much as 2% after the Bureau of Labor Statistics reported that prices, excluding food and energy, rose by 0.2% from November to December, less than the 0.3% that economists were expecting.

Before the release of the consumer price index, investors braced for downside volatility. Economic growth has remained strong in recent months and the Federal Reserve warned at its last meeting that inflation was proving to be stickier than it liked.

Traders, in turn, pared Fed rate cut expectations and Treasury bond yields spiked, with the 10-year and 30-year Treasury bond yields rising to their loftiest levels since late 2023 and threatening to break above 5%.

The latest CPI data assuaged some inflation jitters, pushing yields down by more than 10 basis points.

While investors still aren’t expecting much in the way of Fed rate cuts this year—probabilities based on the pricing of federal funds futures suggest there will be just one reduction in 2025—the latest inflation reading takes some of the more dire predictions of Fed rate hikes off the table.

Markets are particularly sensitive to inflation with the incoming Trump administration threatening to impose heavy tariffs on U.S. trading partners.

Stocks Fall From All-Time High

The S&P 500 Index had fallen as much as 5% from its all-time highs leading up to the CPI report, while the Cboe Volatility Index, a measure of fear in the stock market, briefly topped 20 for the first time in a month.

In its CPI report, the BLS said that growth in shelter prices had cooled in December, offsetting an acceleration in goods prices.

Headline CPI, which includes the prices of all consumer goods and services, increased more than expected—0.4% from November to December versus the expected 0.3%. Rising energy prices were the culprit.

However, the Fed tends to prefer less volatile core measures of inflation, which strip out more volatile food and energy.

Additionally, the central bank prefers the personal consumption expenditures (PCE) price index over the CPI. Inflation as measured by the PCE has been running below that of the CPI. The next PCE report will be released Jan. 31.

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