Inflation cooled down in April after a hotter-than-expected start to the year, boosting bets that the Federal Reserve will finally start cutting rates this fall — and leading to a record-breaking rally on Wall Street.

The Consumer Price Index, which tracks goods and service costs, rose 3.4% in April from a year ago — easing from the previous month’s 3.5% spike and in line with economists’ forecasts, according to FactSet.

The inflation rate was still well above the Fed’s 2% target. However, hopes the central bank will start its easing cycle in September were further bolstered by other data on Wednesday showing retail sales were unexpectedly flat last month.

The reports suggested that domestic demand was cooling, which will be welcome news for Fed chair Jerome Powell as the policymakers try to engineer a “soft-landing” for the economy.

“It’s a relief we didn’t have a fourth hot CPI report,” said Carol Schleif, chief investment officer at the BMO family office in Minneapolis.

“Clearly markets liked that the inflation numbers looked softer. Retail sales came in softer. It’s pretty clear evidence that the economy came off the boil and is operating at a more sustainable pace.”

Financial markets are now forecasting a roughly 73% probably of a rate cut in September, up from 69% before the CPI data was released by the Labor Department’s Bureau of Labor Statistics . A few economists predicted lowered borrowing costs in July.

Investors sent all three major indexes through record barriers. The Dow Jones Industrial Average soared 350 points to close at 39,908, eclipsing its previous mark of 39,807. The S&P 500 topped 5,300 for the first time, jumping 1.17% to 5,309. The tech-heavy Nasdaq Composite rose 1.40%, to 16,742.39, setting an all-time high.

The annual increase in consumer prices has dropped from a peak of 9.1% in June 2022, though progress had stalled. Inflation accelerated in the first quarter amid strong domestic demand after moderating for much of last year.

The latest CPI data showed so-called core inflation, which strips out volatile food and energy prices, came in at 3.6% on an annual basis as expected — its lowest reading since early last year.

On a month-to-month basis, inflation rose 0.3% last month — slightly lower than the 0.4% forecast after advancing 0.4% in March and February.

The cost of shelter, which includes rents, increased 0.4% for the third straight month. Gasoline prices shot up 2.8%.

These two categories contributed over 70% of the increase in the CPI. Food prices were unchanged. Prices at the supermarket fell 0.2%, with eggs dropping 7.3%. Meat, fish, fruits and vegetables as well as nonalcoholic beverages were also cheaper.

But cereals and bakery products cost more, while prices for dairy products rose marginally.

Last month’s overall slowdown was a relief after data on Tuesday showed a jump in producer prices in April.

On Tuesday, Powell reiterated that he expects inflation to ultimately reach the central bank’s 2% target, but admitted that his confidence in that forecast has weakened after three straight months of elevated price readings.

The central bank early this month left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since last July. The Fed has raised its policy rate by 525 basis points since March 2022, the highest rate in 23 years.

Powell underscored Tuesday that the Fed will keep its rate at that level for as long as needed to fully conquer inflation

Economists say inflation is being driven by providers of services like motor vehicle insurance, housing and healthcare catching up to higher costs.

Whether inflation continues its decline will likely have a significant effect on this year’s presidential race.

Republican critics of President Joe Biden have sought to pin the blame for high prices on the president and to use it to try to derail his re-election bid.

While hiring remains robust and wage growth, on average, healthy, prices remain generally well above where they stood before the pandemic.