Asian markets rallied on Thursday as investors let out a sigh of relief after government data showed that United States inflation is finally easing from a four-decade high, giving the Federal Reserve (Fed) some room to slow down its pace of interest rate hikes.

The below-forecast reading on consumer prices in July — 8.5 percent, compared with 9.1 percent a month earlier — came on the back of a sharp drop in energy costs and provided a much-needed boost to risk assets across the board.

Wall Street enjoyed a surge that saw the Nasdaq pile on more than 2 percent and push it into a technical bull market — having spiked more than 20 percent from its June lows — while the dollar dropped against its peers. And Treasury yields — a gauge of future interest rates — fell.

Trading floors had been nervous going into Wednesday’s data release, as many had feared a forecast-topping figure would beef up pressure on the Fed to announce another bumper rate hike at its September meeting.

Fears that the US central bank’s monetary tightening drive would send the world’s top economy into a recession have pulled markets lower for months, with the mood already darkened by several issues, including the war in Ukraine, supply chain snarls and worsening China-US relations.

The positive energy from New York filtered through to Asia, where Hong Kong climbed more than 2 percent, while Shanghai, Sydney, Seoul, Taipei and Jakarta all rose more than 1 percent. Manila jumped more than 3 percent, with Singapore, Wellington and Mumbai also up.

Paris and Frankfurt rose in the morning, though London was flat.

But while sentiment was positive, analysts warned against getting overexcited as inflation was still high and would take some time to get under control, while figures on producer prices — which could have a bearing on future consumer price index readings — will also be closely watched.

“We still need to see a couple more monthly decreases in underlying inflation before the [Fed] can start to think about pausing its tightening cycle,” Carol Kong of Commonwealth Bank of Australia told Bloomberg Television.

“The market is still currently underestimating US inflation and how sticky it will be over the medium term,” she said.

Meanwhile, Fed officials were out trying to temper expectations that they might start reducing borrowing costs as soon as next year.

Minneapolis Fed chief Neel Kashkari warned “we are a long way away from saying that we’re anywhere close to declaring victory,” while Chicago Fed boss Charles Evans said rates would continue to rise for “the rest of this year and into next year.”

Investors will be hanging on further comments from policymakers over the next weeks for an idea about the pace of rate hikes, with a still-strong jobs growth showing the US economy remained resilient despite higher borrowing costs and inflation.

“Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening,” Oliver Blackbourn of Janus Henderson Investors said.

“However, the Fed will doubtless be focused on the signs about underlying inflation, particularly against a very tight-looking labor market,” he added.

Oil prices edged down as demand expectations continued to be sapped by worries about a recession, with both main contracts at about six-month lows and below their pre-Ukraine war levels.

The selling was also being fed by data showing US stockpiles at their highest levels since December, thanks to a pickup in domestic output, while some flows to three European countries from Russia resumed after a payment dispute linked to sanctions was resolved.