NEW YORK (AP) — Stocks closed higher on Wall Street after the government reported that inflation cooled more than expected last month, cementing expectations that the Federal Reserve is about to dial down the size of its interest rate hikes.

The Fed is widely expected to raise its benchmark rate a half-point Wednesday, smaller than the past four mega-increases of three-quarters of a point.

The S&P 500 rose 0.7% Tuesday, the Nasdaq rose 1% and the Dow rose 0.3%. Treasury yields fell sharply. The yield on the two-year Treasury, which tends to track expectations for what the Fed will do, dropped to 4.22% from 4.39%.