Not that the stock market really needed much convincing, but Thursday's wash of economic data revived hopes for a soft landing in the economy, helping push the Dow further into record territory.

The core consumer price index for October, which excludes energy and food prices, showed a 0.1% increase in October, lower than consensus expectations for a 0.2% increase. The headline CPI fell 0.5% in October, more than the 0.3% decline that analysts predicted.

The inflation news led St. Louis Federal Reserve President William Poole to tell reporters at an event at the Cato Institute in Washington, D.C., that he's "happy that consumer prices moderated last month," and that "it's another little scrap of evidence in the right direction."

By the right direction, he means the direction of the Fed's forecast that pausing to evaluate the damage of the declining housing market means economic growth will slow enough to stamp out inflation, but not so much that the economy slips into a recession.

Even some of the most ardent inflation hawks are starting to acknowledge that the inflation threat may be less severe than originally thought.

"These data present a headwind to our case for a more significant inflation problem than widely believed," writes Michael Darda, chief economist at MKM Partners. "While we are not yet convinced that the inflation dragon has been slain, we at least have the verisimilitude that core inflation pressures are moderating significantly and that the inflation threat is behind us."

Darda added that the benign inflation outlook makes the stock market look even better, and the bond market is still overpriced. Thursday's data did nudge the bond market off kilter, with the 30-year Treasury bond dropping 20/32 to yield 4.74% while the 10-year note fell 12/32 to yield 4.67%; the two-year note dropped 2/32 to yield 4.85%.

If all things remain on this low-inflation, decent-growth trend, "this is the Fed's nirvana," Darda. The Fed wants to keep the fed funds rate at 5.25%, let inflation dwindle down, and avoid threatening a rebound in the housing market.

The housing market revealed another sign of a possible bottom and the makings of a soft landing, and another reason to buy stocks (or at least, not to sell them). The National Association of Home Builders/Wells Fargo Housing Market Index came out at 33 for November, two points higher than last month's reading.

"More and more builders are seeing the light at the end of the tunnel," said NAHB President David Pressly, in a press release.

The Philadelphia Housing Sector Index gained 1.04% on the news.

More private equity activity and a sharply falling price of oil also helped boost the three major stock indices. The Dow Jones Industrial Average gained 0.44% to close at a new record: 12,305.82. The S&P 500 added 0.23% to close at 1399.76.

The Nasdaq Composite gained 0.26% to close at 2449.06, weighed down by weakness in Dell ( DELL, which revealed a formal Securities and Exchange Commission probe into its accounting; Sears Holdings ( SHLD, whose third-quarter earnings were below expectations; and Applied Materials ( AMAT - Get Report), whose fiscal fourth-quarter profits also disappointed. (After the close, Starbucks ( SBUX - Get Report) shares were down 5.5% as revenue was a bit shy of estimates.)

Clear Channel Communications ( CCU - Get Report) was the latest company to announce a jumbo leveraged buyout. The radio company announced it will be bought out in an $18.7 billion deal by a consortium of private-equity investors including Thomas H. Lee Partners and Bain Capital. Shares of Clear Channel were up 3.63% on the day.

Separately, Reader's Digest ( RDA shares jumped 7.7% after the magazine publisher agreed to be acquired by a Ripplewood Holdings-led investor group in a $2.4 billion transaction.

In the bond world, two other LBOs reached the next stage in their progress. Freescale Semiconductor ( FSL easily sold $5.95 billion of high-yield bonds Wednesday to fund its $17.6 billion leveraged buyout by a consortium of private equity firms, including Blackstone Group, Carlyle Group, Premira Funds and Texas Pacific Group. Freescale's shares climbed 0.23%.

The semiconductor LBO financing came a week after hospital company HCA's ( HCA - Get Report) $5.7 billion high-yield bond deal priced. But HCA's shareholders finally approved the buyout Thursday. Its shares rose 0.26%.

The Dow Jones Transportation Average gained another 1.08% to close at 4881.57, led in large part by more gains in the airline sector on the heels of US Airways' ( LCC bid to take over bankrupt Delta ( DALRQ. AMR ( AMR gained 1.9%, United Airlines ( UAUA rose 3.8%, and US Airways added 1.9%.

The bond market was focused solely on the data. St. Louis Fed President Poole captured the spirit of Wednesday's inflation data, by adding that that he couldn't say "this number means we are out of the woods on inflation."

The bond market, however, started to see the light at the edge of the woods after over two months of betting that the economy is sliding into recession. Typically, a benign inflation reading might cause Treasury bonds to rally as it keeps the Fed on pause with room to ease. But Thursday, the Treasury bond market sold off, reflecting the idea that the hard landing priced into bonds is too aggressive a bet.

With bonds yielding between 50 and 75 basis points below the fed funds rate, the rate-cut expectations were running too high. If the economy stays afloat while inflation comes off the boil, the bond market is in for a surprise. The slightly stronger-than-expected Philadelphia Fed Survey of business activity also supports the case for a strong economy, as did Thursday's decline in initial jobless claims, and a benign industrial production report.

Bottom line: Score one for the Fed ... and another one for the stock market.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.