U.S. consumer prices stalled unexpectedly in October, leading several analysts to conclude that the inflation genie is almost back in the bottle.

According to the Labor Department, October’s consumer price index (CPI) was flat compared to September and up 3.2% on a 12-month basis. Economists expected both figures to be higher.

So-called core inflation, which excludes volatile food and energy prices, increased by 0.2% monthly and 4% year-over-year. That was the lowest annual reading in two years.

“The sources of inflation are disappearing quickly,” said Luke Tilley, chief economist at Wilmington Trust.

The CPI report was welcome news for households whose grocery bills have skyrocketed over the past two years. Investors also cheered the report, with the S&P 500 rising almost 2% on Nov. 14.

But Wall Street’s positive reaction had less to do with grocery bills and more with the Fed.

Countdown to rate cuts?

The Labor Department’s monthly inflation report is a closely watched harbinger that sets expectations about what the Fed will do next. The Fed uses inflation data to gauge whether to raise, cut, or keep interest rates on hold.

With the latest CPI data, “The bar for further rate hikes is getting higher and higher,” according to Wells Fargo chief economist Jay Bryson.

“This is a good start in that journey, but you would need to see a few more months of 0.2 [percent] before saying mission accomplished,” he explained.

Meanwhile, The Wall Street Journal’s chief economics correspondent, Nick Timiraos, boldly proclaimed that CPI and the recent jobs data “strongly suggest the Fed’s last rate rise was in July.”

Like CPI, the pace of hiring in the U.S. is cooling and potentially eliminating the need for further Fed hikes.

If July was indeed the last rate cut, history says it takes an average of eight months before the Fed resumes cutting rates.

The Fed pleased with results

Central bankers are growing more confident that they’ve successfully course-corrected from one of their worst predictions in recent history—that inflation was “transitory” and didn’t require much attention.

After that embarrassing misstep, the Fed hiked interest rates 11 times between 2022-2023, bringing the federal funds rate to a range of 5.25-5.5%.

“We may have brought down inflation as fast as it has ever come down, and we did that without starting a recession,” said Chicago Fed president Austan Goolsbee.

Fed Chair Jerome Powell told a conference earlier this month: “The progress is probably going to come in lumps and be bumpy, but we’re making progress.”

Despite apparent progress, some Wall Street insiders think the Fed’s credibility is still at stake. Citadel founder Ken Griffin believes it would be a mistake for the Fed to cut rates too soon.

“If they cut too soon, I think they risk losing credibility around their commitment to a 2% inflation target,” he said in an interview with Bloomberg.