U.S. stocks are rising and government bond yields are retreating Wednesday after inflation cooled modestly in July.

Consumer prices increased 3.4% year-over-year, down from 3.5% in June and in line with economists' expectations. On a month-over-month basis, consumer prices increased 0.1%, also landing right on forecast.

Wednesday's report is a critical data point for investors ahead of next month's Fed meeting, with traders divided on whether officials will hold rates steady or raise them by a quarter-percentage point. Last week's jobs report offered officials some room to hold, and Wednesday's data may strengthen that case. Expectations that the Fed will stand pat increased slightly after the CPI release.

Away from inflation, stocks are finding support from companies tied to AI. Tech stocks rose after blockbuster results Tuesday from cloud-computing company CoreWeave and server company Super Micro Computer.

Meanwhile, oil prices are swinging between small gains and losses. Brent crude dipped below $90 a barrel as hope for a deal to reopen the Strait of Hormuz dimmed.