The Dow Jones index gained 0.67%, the tech-dominated Nasdaq advanced 0.94% while the S&P 500 rose 0.65% around 14:00 GMT.
Inflation in the United States surprised by accelerating more strongly than expected in April, according to the Fed's preferred measure of price increases.
The PCE index increased by 4.4% year-on-year against 4.2% the previous month. More worryingly, the underlying index, removing volatile sectors such as food and energy, accelerated to 4.7%.
Annual inflation is therefore more than twice as high as the central bank's target.
These strong inflation figures mitigated the possibility of a lasting pause in interest rate hikes, as markets had hoped.
"Inflation is a bit stronger than expected in April and suggests the Fed still has some work to do," said Paul Aswhorth of Capital Economics.
The economist believes, however, that "with the impasse on the debt ceiling, it is likely that the Fed will remain on the sidelines in June", at its next meeting on the 14th, "but some officials are considering a further increase in July".
In addition, US household spending rose sharply (+0.8% in April), partly reflecting rising prices, while their incomes also increased (+0.4%).
The shift in consumption was good news for markets, removing the specter of a recession. But for Chris Low of FHN Financial, "the chances of an interest rate hike as early as June are rising again".
Investors were mostly focused on the debt ceiling talks that seem to be moving in the right direction between the White House and congressional leaders, even if a vote of approval afterwards will be difficult to get from Republican elected officials.
Discussions between the White House and the Republican opposition are "productive", assured Thursday the spokeswoman of the executive, Karine Jean-Pierre, removing the prospect of a default of payment of the United States.
"We are talking this morning about a possible agreement that would block an increase in federal spending for two years, except in the defense sector," said Patrick O'Hare of Briefing.com. "At the same time, it is suggested that some members of the House of Representatives, coming from both parties, do not agree with these principles," the analyst added.
After the release of the inflation figures, bond yields started to rise slightly. On two-year bonds, the most sensitive to the Fed's rate hike, they climbed to 4.58% from 4.53% the day before.
On the rating, chipmaker Marvell Technology gained more than 24% after positive comments on the momentum of artificial intelligence. Nvidia, one of the leaders in the sector, in processors dedicated to AI, had carried the Nasdaq the day before by gaining more than 24% thanks to ambitious projections for the 2nd quarter.
Struggling ready-to-wear brand Gap jumped more than 11% to $8.25 after a surprise profit in the first quarter at the cost of strong structural savings.
The regional banks were going downwards, as if the prospects of a resumption of Fed rate hikes could create new difficulties for these institutions. PacWest lost 4.63%, Zions dropped almost 2%.
© 2023 AFP