Key Points
-
Inflation has been a primary concern on Wall Street, with the effects of the Iran war lifting U.S. inflation to a three-year high in May.
-
Although headline inflation eased considerably in June, led by lower fuel prices, this doesn’t tell the complete story.
-
Fed Chair Warsh plans to tackle “sticky prices,” which may put a historically expensive stock market in a bind.
- 10 stocks we like better than S&P 500 Index ›
Although earnings season typically garners all the glory on Wall Street, monthly inflation reports have been outshining corporate earnings in recent months. In May, U.S. trailing 12-month (TTM) inflation jumped to a three-year high of 4.2%.
Despite this rapid jump in inflation, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and technology-inspired Nasdaq Composite (NASDAQINDEX: ^IXIC) have all recently catapulted to all-time highs. But sweeping inflationary concerns under the rug can be a potentially dangerous maneuver for Wall Street and investors.
While the June inflation report offered a silver lining for consumers, Fed Chair Kevin Warsh’s testimony before Congress on July 14 may have dashed Wall Street’s hopes of putting this inflationary surge in the rearview mirror.
Headline inflation eased considerably in June — but this doesn’t tell the complete story
Shortly after President Donald Trump gave the order for the U.S. military to attack Iran on Feb. 28, the latter closed the Strait of Hormuz to virtually all maritime traffic. This action halted the transport of a fifth of the world’s crude oil supply and sent fuel prices soaring. Between February and May, U.S. TTM inflation soared from 2.4% to 4.2%.
However, advanced peace talks (which have since broken down, as of this writing) allowed crude oil prices to tumble from their Iran war highs. While fuel prices are known to rise like a rocket during supply shocks and fall like a feather once resolved, a notable drop in gasoline and diesel prices dragged TTM inflation down to 3.5% in June.
BREAKING: June CPI inflation falls to 3.5%, below expectations of 3.8%
Core CPI inflation falls to 2.6%, below expectations of 2.8%.
Month-over-month CPI inflation fell -0.4%, the biggest monthly drop since May 2020.
US stock market futures are surging on the news.
— The Kobeissi Letter (@KobeissiLetter) July 14, 2026
Though headline inflation offers the impression that the worst of the Iran-war-driven inflation is behind us, Core Personal Consumption Expenditures (PCE) tell a different story. Core PCE, which excludes volatile food and energy costs, is one of the Federal Reserve’s favorite measures of inflation, and it’s been steadily rising (through May).
In other words, inflation remains problematic, which is something Fed Chair Kevin Warsh homed in on this week.
Kevin Warsh just dropped a bombshell on Wall Street
Twice a year, following the semiannual release of the Monetary Policy Report from the Federal Reserve, the Fed chair testifies before the House Financial Services Committee. In Warsh’s first congressional testimony since being sworn in as Fed chair, he took a hardline stance on inflation.
Despite fuel prices meaningfully weighing down headline inflation in June from the previous month, Warsh remarked:
The longer prices have been above the inflation target, it’s usually a bit harder to dislodge them and get them lower. Our job, my commitment to you, is to take sticky prices and to unstick them.
These final 15 words emphasize Warsh’s historical stance as a monetary hawk and strongly signal that interest rate hikes remain firmly on the table. Warsh himself referred to the June inflation data as “one data point” and cautioned against cherry-picking it as evidence that the battle against inflation is over.
A few takeaways from Warsh’s first appearance before the House Financial Services Committee:
1. Warsh repeatedly defended his agenda by pointing to how the Fed had failed to restore price stability after 2022-23. He delivered a particularly pointed critique of the 2020 framework…
— Nick Timiraos (@NickTimiraos) July 14, 2026
Rate hikes could prove disastrous for the second-priciest stock market in history. Making borrowing costlier threatens to slow the artificial intelligence (AI) data center build-out — i.e., the top catalyst that’s lifted the Dow, S&P 500, and Nasdaq Composite to new heights. If this infrastructure build-out slows, a rerating of growth rates and premium valuations for AI stocks may follow.
Should you buy stock in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $396,542!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,299,961!*
Now, it’s worth noting Stock Advisor’s total average return is 931% — a market-crushing outperformance compared to 210% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
