Fed officials are hinting that the rate hikes are over and investors are celebrating

Federal Reserve officials appear to be dialing back the chances of future rate hikes after months of carefully keeping alive the possibility of further policy changes out of fear that inflation could prove stubborn.

Several Fed officials — including two who often push for higher interest rates — hinted Tuesday that the central bank is making progress on inflation and may be done or nearly done raising borrowing costs. Economic growth is cooling down, reducing the urgency for additional measures.

Christopher Waller, governor of the Fed and one of the more inflation-focused members of the central bank, gave a speech on Tuesday titled “Something Seems to Give,” an update of an earlier speech he had titled “Something Must Give Be given’.

“I am encouraged by what we have learned in recent weeks – something seems to be giving, and that is the pace of the economy,” Mr Waller said. “I am increasingly confident that policy is currently well positioned to slow the economy and bring inflation back to 2 percent.”

Michelle Bowman, another Fed governor who also tends to be inflation-oriented, said she saw risks that factors such as higher spending on services or rising energy costs could keep inflation high. She said it was still her fundamental expectation that the Fed should raise interest rates further. Still, she did not sound firm on such a move, noting that the policy was not following a “predetermined course.”

“I remain prepared to support raising the Federal Funds Rate at a future meeting should incoming data indicate that progress on inflation has stalled or is insufficient to bring inflation back to 2 in a timely manner percent,” Ms. Bowman said.

Together with other recent comments from Fed officials, the latest comments provide an increasingly clear signal that central bank policymakers may be done with their campaign to raise rates in an effort to slow demand and cool inflation. Interest rates are already set at a range of 5.25 to 5.5 percent. The next Fed meeting will take place on Dec. 12 and 13, and investors are overwhelmingly betting that the central bank will hold rates steady, as policymakers did at their last two meetings.

Investors appeared buoyed by Fed officials’ comments. Higher interest rates increase costs for consumers and businesses and generally weigh on markets. Yields on two-year government bonds, which are sensitive to changes in investors’ interest rate expectations, fell significantly on Tuesday morning. Yields fall as prices rise. The move initially provided a tailwind for the stock market, lifting the S&P 500 from its earlier decline to a 0.3 percent gain, before the rally weakened and drove the index back down.

Fed officials have been nervously eyeing the continued strength of the economy, with gross domestic product growing at a breakneck 4.9 percent annual rate in the third quarter. The concern was that continued strong demand would give companies the means to continue raising prices quickly.

But recently, job growth has slowed and consumer price inflation is showing meaningful signs of a broad slowdown. This gives policymakers more confidence that their current policy setting is aggressive enough to fully control price increases.

Still, as both Mr. Waller and Ms. Bowman have made clear, Fed officials are not ready to definitively declare victory — numbers could still surprise them. And while a recent rise in longer-term yields has helped cool the economy, the move is already reversing as investors predict a softer Fed policy path.

Yields on 10-year government bonds, one of the world’s key interest rates, fell dramatically last month after rising in previous months, capping a stock market sell-off and boosting investor optimism. But higher stock prices and cheaper borrowing costs can prevent growth and inflation from slowing as quickly.

“The recent easing of financial conditions reminds us that many factors can influence these conditions and that policymakers must be cautious about relying on such tightenings to do our work,” Waller said on Tuesday.