Inflation refers to the general rise in the price of goods and services. The U.S. Federal Reserve aims to keep the consumer price index (CPI) measure of Inflation growing at an annual rate of 2%, and the central bank will adjust the federal funds rate (overnight interest rates) when it deviates too far from that target.

The CPI hit a 40-year high of 8% in 2022, triggering one of the most aggressive campaigns to hike interest rates in the history of the Fed. The rate of inflation has cooled considerably since then, so the central bank appears set to reverse that policy.

That means interest rates may be cut for the first time since March 2020. If history is any guide, that could trigger a big move in the benchmark S 500 (SNPINDEX: ^GSPC) stock market index -- but the direction might surprise you.

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Source Fool.com