US stocks drifted slightly on Wednesday, holding near record highs after new data suggested that President Donald Trump’s tariffs are not significantly accelerating inflation—at least for now.By afternoon trading, the S&P 500 was down just 0.1%, keeping it only 1.8% below its all-time high set in February. The Dow Jones Industrial Average gained 94 points, or 0.2%, as of 12:24 p.m. Eastern time, while the Nasdaq composite edged 0.2% higher.Markets saw more movement in the bond space, where Treasury yields fell after a report showed that inflation in May rose less than economists had expected. Consumer prices were 2.4% higher than a year earlier—slightly above April’s 2.3% rate, but still below the 2.5% forecast by Wall Street.Investors have been concerned that Trump’s broad tariffs might fuel inflation just as the rate appeared to be stabilizing near the Federal Reserve’s 2% target, down from its 9% peak three summers ago. So far, that fear has not materialized, though economists warn that the full impact of the tariffs could take months to emerge.For now, many companies may be relying on existing inventory, instead of immediately passing on higher import costs to consumers.“Another month goes by with little evidence of tariffs, but the longer-term inflation challenge they pose remain,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, as quoted AP.Financial markets showed little immediate reaction to the conclusion of two days of US-China trade talks in London. President Trump announced that China will supply rare-earth minerals and magnets to the US, while the US will allow Chinese students to attend American universities as part of a broader agreement still awaiting final approval by both Trump and Chinese President Xi Jinping.“President XI and I are going to work closely together to open up China to American Trade. This would be a great WIN for both countries!!!” Trump said Wednesday on social media.Markets remain hopeful for a larger, more comprehensive trade agreement that could ease tensions between the world’s two biggest economies. Optimism over potential deals has been a major force behind the S&P 500’s rebound, which has nearly reclaimed its record level after dropping about 20% earlier this year. Without such agreements, high tariffs could raise inflation and risk pushing the US economy into a recession.In corporate news, Chewy shares slid 9.3% after the pet supply retailer reported quarterly profits below analyst expectations, despite a strong year-to-date rally of nearly 37%.Tesla shares rose 1.7%, helping to support broader markets. The stock has been rebounding after last week’s losses stemming from Elon Musk’s public fallout with President Trump. Musk has since softened his remarks, saying on Wednesday that some of his previous comments “went too far.”In the bond market, the 10-year Treasury yield dipped to 4.43% from 4.47% on Tuesday. Shorter-term yields—more sensitive to Fed rate expectations—declined even more.The moderate inflation reading has increased speculation that the Federal Reserve may cut interest rates at least twice before year-end. So far in 2025, the Fed has kept rates steady after last year’s cuts, watching carefully to see how tariffs might influence inflation. Lowering rates now could help support growth but also risks reigniting inflation.“The Fed could be justified in doing some preemptive rate cuts,” said Brian Jacobsen, chief economist at Annex Wealth Management. “They were afraid that inflation would rise before growth would slow, but the script has been flipped and they will likely change their tune.”Globally, European stock indexes fell, while Asian markets mostly rose. South Korea’s Kospi led the gains with a 1.2% jump.