There’s a particular kind of relief that shows up on a trading floor when a number everyone was dreading turns out fine. That was Tuesday.June’s inflation report landed well below what economists had penciled in, and within minutes, the tone of the entire session shifted.By the end of the session, the Nasdaq recorded its best performance in weeks, the S&P 500 closed firmly in positive territory, and the Dow erased most of its earlier losses, ending the day roughly flat.Inflation Cools Just as Warsh Takes the StandConsumer prices fell 0.4% in June, marking the biggest monthly decline in more than six years and coming in well below economists’ expectations. Annual inflation also eased to 3.5%, down from more than 4.2% in May.Excluding the often-volatile food and energy categories, prices were essentially unchanged.That’s the measure the Federal Reserve watches most closely because it offers a clearer picture of underlying inflation trends.The report arrived just hours before new Fed Chair Kevin Warsh appeared before Congress for his first testimony since taking office.Rather than signaling concern about persistent inflation, He suggested that the worst of the inflation surge may now be behind the economy. Markets responded quickly as expectations for another interest rate hike faded.The cooling inflation data eased concerns about further Fed tightening, encouraging investors to rotate back into growth stocks, which typically benefit when interest rate expectations decline.Is the Inflation Risk Really Behind Us?Despite the optimism from the data, sentiment in the market remains selective, not widespread.Small-cap stocks, which typically benefit when interest rate concerns ease, ended the session lower while Semiconductor shares rebounded sharply, with memory chipmakers among the day’s biggest winners.Also, the risks that fueled this year’s inflation concerns haven’t disappeared. While June’s inflation report offered some relief, renewed geopolitical uncertainty in the Middle East has pushed oil prices higher again.If crude oil continues climbing, businesses could once again face higher transportation and production costs, which often find their way into consumer prices. That would make it more difficult for inflation to keep moving toward the Federal Reserve’s 2% target.The truth is that one encouraging inflation report doesn’t erase months of officials warning that price pressures remained a live concern. That means upcoming reports on consumer prices, producer prices, employment, and consumer spending will likely carry just as much weight as June’s CPI reading.What Comes NextThe June CPI report was an important step in the right direction, but it is unlikely to settle the inflation debate on its own.Investors should focus on whether future inflation readings confirm the trend, how oil prices evolve, and whether Federal Reserve officials begin signaling greater confidence that inflation is moving sustainably toward target.At the same time, corporate earnings will help determine whether businesses are still facing cost pressures or beginning to see a more stable operating environment.