Stocks Rise on Optimism About Inflation

Fear of how high the Federal Reserve will push interest rates eased more today after another influential Fed-watcher predicted the rate hikes will soon end.

Rate worries were also relieved by the Fed's latest update on the health of the economy. It showed moderate growth -- which means little need for boosting rates to avoid inflation.

Taken together, the two developments gave Wall Street confidence in what will be reported tomorrow when the government releases its most important measure of inflation, the consumer price index.

The CPI report is always important to the stock market, this month more than ever. Stocks have been rallying on the belief that inflation is under control, a prediction that puts rate-worries to rest.

Confidence in that scenario was strong enough to lift the market today.

The Dow Jones industrial average climbed 59 points to 11,209.77 and the Standard & Poor's 500 stock index gained 5 points to 1,303.02. Both indexes are now as high as they've been since May 2001 -- almost five years ago.

The Nasdaq Stock Market composite index advanced 16 points to 2,311.84 -- 20 points short of a five-year high for that index as well.

The newest voice in the "how much higher will rates go" debate is Bloomberg financial columnist John F. Berry, who earned a reputation as Washington's top Fed-watcher during his long career at The Washington Post. Berry said the Fed seems "likely to pause" when rates reach 5 percent; many economists have been predicting 5.25 percent or 5.5 percent.

The short-term rates set by the Fed are now at 4.5 percent and are expected to go to 4.75 percent when the Fed next meets.

Wall Street has been expecting rates to go higher, so a pause would be considered a pleasant surprise by stock buyers.