Fears of elevated interest rates dampened the mood on Wall Street at the start of this year–but cooling core inflation and dovish comments by Federal Reserve governor Christopher Waller have given investors reason to feel a bit more cheerful this week.

Financial markets are still concerned about inflation. The Fed influences short-term interest rates, which are falling, but longer-term bonds like the 10-year Treasury are a better reflection of inflation expectations.

The yield on the 10-year Treasury has recently soared toward its highest level since 2023, injecting nervousness into the U.S. stock market that's knocked indexes from their records.

The central bank’s recent infusion of financial-market brawn includes Beth Hammack, who worked for three decades at Goldman Sachs.

Annual inflation ticked up for a third straight month in December as food, energy costs rose, CPI report showed. But underlying price measure eased.

Consumer Price Index showed an acceleration to 2.9%, the highest rate since July. With such high inflation, the Fed is unlikely to cut rates in January.

The US Federal Reserve could cut rates three or four times this year if inflation data cooperates, with a first cut possible before July, a senior bank official said Thursday.

Federal Reserve Governor Christopher Waller said the US central bank could lower interest rates again in the first half of 2025 if inflation data continues to be favorable.

As mentioned, mortgage rates haven't fallen in line with the Fed's rate cuts because they depend on factors beyond the agency's benchmark rate, such as the economy and 10-year Treasury bond yields. For example, when the 10-year treasury rate goes up, mortgage rates tend to follow, and vice-versa.

Gold prices hovered near a five-week high on Friday and were set for a third straight week of gains, as U.S. inflation data released earlier this week revived expectations that the Federal Reserve might cut interest rates more than once this year.