(Bloomberg) -- The clearest sign yet that the Federal Reserve’s campaign against inflation is slowing price gains jolted risk assets higher across Wall Street on Thursday.

Futures spiked, short-term Treasury yields sank and the dollar weakened versus major peers after the consumer price index accelerated less than forecast in September. The S&P 500 jumped as much as 3.7% after the open -- the most in two years -- and the benchmark is poised for its best first-day reaction for a CPI report since 2008.

Cooling inflation reinvigorated speculation that the Fed will slow the pace of interest-rate increases and potentially halt hikes sooner than the market currently anticipates. Swaps traders have already scaled back bets for another 75 basis-point hike in December.

“Finally a downside surprise on inflation -- the market and the Fed can breathe a small sigh of relief,” said Esty Dwek, chief investment officer at Flowbank SA. “Markets are understandably happy and believe the Fed will be able to downshift.”

Here’s more of what Wall Street had to say:

Priya Misra, head of global rates strategy at TD Securities”

“Inflation is still high and broad-based so not an end of the hiking cycle but they can slow down for sure. It wasn’t just one component that fell. That’s what makes this a legitimate decline. It was a broad-based decline.”

Florian Ielpo, head of macro research at Lombard Odier Asset Management:

“Inflation retreats for the fourth consecutive month: It has become hard to deny that the Fed’s medicine is working -- with lagged effects. With the Fed’s rates’ plateau that is now upon us, time has come to load up on bonds and let the equity run go. The bond trend looks a lot more long lasting than the equities, but without a recession, sentiment is likely to support equity valuations until year-end.”

Bryce Doty, senior vice president at Sit Investment Associates:

“Hard to believe that a 7.7% year over year inflation rate is reason for celebration, but the 0.3% monthly change in core CPI reduces pressure on the Fed to raise rates another 0.75% at their next meeting; so a relief rally in both stocks and bonds.”

Charlie McElligot, Nomura Securities International strategist:

“The question isn’t about CPI inflation going down to 7-6-5%, because that’s just the eventuality of the math,” he wrote. “It’s about what happens when it gets down to 4%, but then gets ‘stuck’ there instead of continuing back towards the incredibly arbitrary 2% ‘target.’”

Marija Veitmane, senior strategist at State Street Global Markets:

“The weakest core print all year. Fed and market should like this … gives them an indication that the end of the aggressive hiking cycle is close. Especially as the weakness is in the services. And signals that shelter prices are peaking, which are slow to move”

Richard Flynn, managing director at Charles Schwab UK:

“Although inflation has fallen, it remains high,” he said. “The central bank does not want to risk inflation becoming entrenched. Despite today’s figures, interest rates are likely to end up higher than investors expected when the Fed commenced its cycle of rate hikes earlier this year.”

Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth Management”

Inflation came in below expectations but remains historically high. We believe the Federal Reserve will continue to tighten monetary policy until it is clear inflation is in a persistent downtrend, and this report, while welcome news, does not give the Fed much reason to materially change course.

Zhiwei Ren, portfolio manager at Penn Mutual Asset Management”

“This means the Fed doesn’t have to hike to 5%, and maybe inflation will come down faster than the market had feared. But, this is just one print. Now we will wait to see the next. CPI will fall to 3-4% fairly easily. Where it goes after that is the real question.”

Dennis DeBusschere, founder of 22V Research:

“We already know that demand growth is below trend, household employment was very weak and layoff announcements are accelerating. Oh, and housing data is very weak. Terminal rate will come down -- two-year rates are headed lower. The real action will be in the back-end of the fed funds futures curve. Will the market start to price aggressive cuts again? If so, rally will extend until the Fed pushes back on cuts being priced.”

George Catrambone, head of Americas trading at DWS:

The Fed is “still factoring in a rate hike of 50 basis points next month. In historical terms, that’s still a sizable move going into next year. It’s way too early to declare victory yet, or some massive Fed pivot.”

--With assistance from Emily Graffeo, Lu Wang, Sagarika Jaisinghani and Jan-Patrick Barnert.

(Updates with fresh comments from McElligot and Catrambone and chart)

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