The S&P 500 was 0.4% higher in early trading after erasing a drop of double that size shortly after the open, while bond prices bounced up and down in the Treasury market in the morning. The moves were tentative as analysts pointed to mixed datapoints within the inflation report.

The Dow Jones Industrial Average was up 10 points, or less than 0.1%, at 34,256, as of 10:08 a.m. Eastern time, while the Nasdaq composite was 0.7% higher after bouncing back from an early drop of 1.1%.

The report was so highly anticipated because inflation and the Federal Reserve’s response to it have been at the center of Wall Street’s struggles for more than a year. Inflation has been cooling since a summertime peak, and investors are trying to guess how quickly and smoothly a decline could happen to the Fed’s 2% target.

Tuesday’s report showed that inflation slowed to 6.4% in January from December, though it was still slightly higher than economists expected.

That could be seen as a negative for markets because it could encourage the Fed to get more aggressive on interest rates than it’s been saying. The Fed has already hiked its key short-term rate to a range of 4.50% to 4.75%, up from virtually zero a year ago.

It’s also been saying it envisions at least a couple more increases before holding rates at a high level for a while. Higher rates can drive down inflation but also raise the risk of a severe recession and hurt investment prices.

Even after ignoring the effects of prices for food and energy, which can swing more sharply than others, inflation was still slightly higher than expected last month. Such strength “suggests that the Fed has a lot more work to do to bring inflation back to 2%,” said Maria Vassalou, co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management. “If retail sales also show strength tomorrow, the Fed may have to increase their funds rate target to 5.5% in order to tame inflation.”

Investors have been raising their forecasts for how high the Fed will take rates by the summer, and they’re now betting on a 13.3% probability that its key rate will top 5.5% by July. That’s up from just a 0.2% probability seen a month ago.

But at the same time, nearly half of January’s month-over-month inflation came from jumps for housing and other shelter-related prices. Fed Chair Jerome Powell has said he expects inflationary pressures there to ease.

Analysts also pointed to changes in the formula for how the government calculates inflation, raising the weights of some items and reducing others.

Investors had been hoping for cooler inflation trends, thinking that could get the Fed to think more about pausing its hikes to rates before eventually cutting them. In the end, several analysts said Tuesday’s inflation report confirms a cooling trend but doesn’t answer any big questions by itself.

“This inflation print served as a reminder to investors that the path to lower inflation is not as clear cut as previously thought and it is too early for the Fed to declare victory on inflation,” said Gargi Chaudhuri, head of iShares Investment Strategy, Americas.

The market’s expectations for the Fed have been driving yields higher in the bond market in particular. The two-year Treasury has shot to its highest level since November, egged on last week after a stronger-than-expected report on the U.S. jobs market.

The two-year yield rose to 4.58% from 4.52% late Monday. It initially zig-zagged up , down and back again immediately after the release of the inflation report.

The 10-year yield, which helps set rates for mortgages and other loans, rose to 3.72% from 3.70%.

In stock markets abroad, Japan’s Nikkei 225 rose 0.6%. Government data showed the world’s third largest economy grew at an annual pace of 0.6% in October-December, as restrictions related to the coronavirus pandemic eased, both abroad and in Japan. Tourism recovered, as did local travel, and exports grew, the Cabinet Office reported.

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AP Business Writers Yuri Kageyama and Matt Ott contributed.