US Stocks Climb as Cooling Inflation Deflates Fed Rate-Hike Bets

US stocks pushed higher and bond yields eased after June inflation data came in cooler than expected, prompting traders to unwind bets on an imminent Federal Reserve interest rate increase. Risk appetite improved as the headline Consumer Price Index fell on the month and annual inflation slowed more than forecast, with the decline driven by falling energy prices and softer core services, particularly shelter. Interest rate futures repriced quickly: the probability of a July rate hike plunged to under one-in-five from around 40% earlier in the week, and policy-sensitive two-year Treasury yields dropped before stabilising near 4.2%. The moves overshadowed hawkish congressional testimony from Federal Reserve Chair Kevin Warsh, who said he had little tolerance for persistently elevated inflation. Strong second-quarter results from major banks added to the upbeat tone. Sentiment remained fragile, however, with oil prices staying elevated amid renewed Middle East tensions and fresh strikes, a reminder that energy-driven inflation risks have not fully faded and could still influence the Fed's path later in the year.