Inflation cools more than expected and Wall Street exhales

Good morning. U.S. consumer prices rose 3.5% in June from a year earlier, below forecasts of 3.6% to 3.7%, thanks in part to lower gasoline and other energy prices. Relief that the Fed has less reason to hike sent chip and tech stocks higher, and the Nasdaq led the way.

Bank earnings helped too. Big Wall Street banks posted a jump in profits on strong trading and investment banking, beating expectations. They also expect AI to set off a supercycle of mergers and financing.

At the Fed, new chair Kevin Warsh made his first appearance before Congress. He said the Fed will not tolerate persistently high inflation, and that any change to its balance sheet will come with plenty of advance notice to markets. He even suggested the AI investment boom could help keep prices in check.

There is a shadow, though. Many analysts see the cooling as the product of a lull in the war and therefore temporary. The U.S. has struck Iran again, and some warn gasoline could climb back to $4 a gallon. Goldman Sachs said the market’s favorite momentum trade has just broken down.