Another U.S. inflation report that came in softer than anticipated has given a boost to both stock and bond markets, with Wall Street further scaling back its bets on Federal Reserve interest rate hikes for this year.

At 9:30 a.m. in New York, the S&P 500 index was up 0.4%, the Nasdaq 100 index had gained 0.6%, and the Dow Jones Industrial Average was largely flat.

The latest data, indicating the war in Iran has had a limited impact on prices, has reinforced the market's view that the Federal Reserve will have greater leeway to postpone any potential monetary tightening actions. Money markets are now only fully pricing in expectations for a single rate hike by December. Short-term U.S. Treasury bonds are outperforming other parts of the yield curve.

"The 2026 inflation rebound appears to have peaked last month and is returning to its pre-conflict downward trend," said Jamie Cox of Harris Financial Group. "This truly helps the Fed avoid the mistake of raising rates during a supply shock."

However, oil prices rose for a third consecutive day as the U.S. launched more airstrikes against Iran. U.S. President Donald Trump vowed to intensify the bombing campaign until Tehran ceases attacks on vessels in the Strait of Hormuz and agrees to reopen the vital waterway.

"Inflation was already slowing last month, but it was primarily driven by goods, not services," noted David Russell of TradeStation. "There's no immediate pressure on the Fed, but in the longer term, oil prices are the decisive factor. Energy prices were a big help in June, but if the Strait of Hormuz isn't opened soon, that could very quickly become a thing of the past."