NEW YORK — U.S. stocks ripped higher Wednesday following a shot of adrenaline from an encouraging update on U.S. inflation. Strong profit reports from Wells Fargo and other big U.S. banks also helped launch indexes to their best day in two months.

The S&P 500 jumped 1.8%. The Dow Jones Industrial Average rallied 703 points, or 1.7%, and the Nasdaq composite leaped 2.5%.

Treasury yields also eased in the bond market following the update on how much more U.S. households had to pay in December for eggs, gasoline, housing and other costs of living. The report said overall inflation accelerated to 2.9% from 2.7% in November.

While no one wants higher inflation, the numbers were more encouraging underneath the surface. After ignoring prices for food and energy, which can zigzag sharply from month to month, underlying inflation trends slowed to 3.2% in December. Economists had thought it would remain at 3.3% for a fourth straight month, according to FactSet.

The Federal Reserve pays more attention to that underlying number than the overall figure, and it’s particularly welcome following worries that improvements in inflation have halted and that it will be tough to get all the way down to the Fed’s 2% target.

Few traders expect Wednesday’s data to convince the Fed to cut its main interest rate at its meeting later this month, as it’s done at three straight meetings since September. But economists and analysts say it could open the door for cuts later in the year, maybe even in March, if more data comes in to show that upward pressure on inflation is abating.

“Perhaps the key takeaway is that markets are likely to be whipsawed over the next few data releases as investors seek a narrative that they can be comfortable with for more than just a few days at a time,” said Seema Shah, chief global strategist at Principal Asset Management.

Wall Street has been lurching down and up for weeks as traders tear up their forecasts for what the Fed will do with interest rates in 2025. A further easing would boost the U.S. economy and prices for investments, but it could also give inflation more fuel.

Traders were ebullient last year about the possibility of a string of cuts to rates, when they sent stocks to dozens of all-time highs, only to rein in their expectations more recently. The Fed itself has indicated it may cut rates only two times this year instead of the four it had earlier projected, and some traders have even considered the possibility of future hikes to rates.

Wednesday’s update quashed speculation about hikes in the near term, and Treasury yields eased in the bond market on growing hopes for coming cuts.