A softer-than-expected inflation report had Wall Street celebrating on Wednesday. It wasn’t just the big headline of year-over-year inflation falling to 3.0% in June, its lowest level in more than two years. Core inflation, which excludes more volatile food and energy prices, also sank to 4.8%, its lowest level since October 2021, the Bureau of Labor Statistics (BLS) reported. The numbers are exactly what Federal Reserve officials were looking for amid their fight against stubborn inflation, which peaked at a four-decade high 9.1% annual rate in June of last year.

“There is nothing not to like in the report,” Ronald Temple, chief market strategist at Lazard, told Fortune. “It’s too early to pop the champagne, but it’s not too early to start chilling the bottle.”

The data underscores the Fed’s progress in fighting inflation after more than a year of interest rate hikes, but it also benefited from falling commodity prices and easy comparisons to last year, when inflation was running hot. Still, the S&P 500 and the tech-heavy Nasdaq Composite responded positively to the latest inflation data Wednesday, rising 0.6% and 0.65%, respectively, by midday.

Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the BlackRock global allocation investment team, said there was a “notable moderation” in inflation in June, which is “good news for policymakers, markets and households overall.” But, like many of his peers, Rieder also believes 3% inflation isn’t enough for the Fed to stop its rate hikes just yet—there’s more work to do to get to the central bank’s 2% target rate.

“Overall, we think that the central banks, and especially the Fed, will want to see a more persistent trend of lower inflation than we have seen for a long while now,” he said. “Still, today was a good and healthy start to that trend.”

President Biden was quick to celebrate the latest inflation report amid consistent criticism over the rising cost of living throughout his presidency. “Good jobs and lower costs: That’s Bidenomics in action,” the White House said in a statement Wednesday. “Today’s report brings new and encouraging evidence that inflation is falling while our economy remains strong.”

A closer look

Looking under the hood at the latest inflation report reveals the typical mixed bag of deflationary and inflationary price categories in the economy.

On the inflationary side, the indexes for shelter, motor vehicle insurance, apparel, recreation, and personal care all increased month over month in June. Despite a deceleration in shelter prices from May, the shelter index was the largest contributor to CPI last month, accounting for more than 70% of the rise in inflation, the BLS reported. Shelter prices jumped 0.4% month over month, and 7.8% from a year ago.

But although CPI shelter prices continued to jump in June, the index is a lagging measure. Home prices have actually fallen consistently since the second quarter of last year.

“This means that if, as we expect, shelter costs start to weaken considerably during the second half of the year, the prospects for much lower inflation readings are looking promising,” Raymond James’ chief economist Eugenio Aleman said.

On the other hand, the indexes for airfares, communication, and household furnishings and operations all declined in June. Airfare prices sank 8.1% last month alone and have now declined at a 43% annualized rate over the last three months amid falling jet fuel prices and slowing domestic air travel.

A steep 5.2% year-over-year drop in used car and truck prices last month was also a major contributor to the first drop in core goods inflation since December 2022. “We think the June decline [in used car prices] is just the start of a series of decreases that should put downward pressure on core and headline inflation. Additionally, we have seen meaningful disinflation in core goods ex used cars of late,” Bank of America’s chief economist Michael Gapen wrote in a Wednesday note.

Gapen, who has been sounding the alarm about a pending recession due to stubborn inflation and the Fed’s rate hikes for over a year now, admitted that the latest inflation data came in “softer than expected.” But the veteran market watcher still fears investors are overly optimistic about the path ahead for consumer prices.

“We continue to believe that stickier, more persistent inflation versus what is priced is likely to challenge long duration positions,” he wrote.

What does this mean for the Federal Reserve?

The big question for investors, homebuyers, and businesses after the latest CPI report is clear: How will the Federal Reserve react? After more than a year of aggressive interest rate hikes led many economists to fear a recession was inevitable, is this report enough to convince Fed Chair Jerome Powell to change tactics?

Most experts Fortune spoke to said the answer is clearly no, and a July rate hike from the central bank is still on the way.

“CPI inflation slowed to 3% in June, but don’t expect the Fed to stop raising rates,” Morning Consult’s chief economist John Leer said. “The Fed cares primarily about the trend in core PCE inflation, which has been persistently elevated for the past six months. One month of encouraging CPI data isn’t enough for the Fed to make a dovish pivot, particularly as it seeks to maintain credibility with financial markets.”

And Thomas Simons, Jefferies’ U.S. economist, wrote in a Wednesday note to clients that although the latest CPI report is “encouraging in some respects,” labor market strength, rising wages, sticky service sector inflation, and easy comparisons from a year ago make “the data difficult to trust at face value.”

“The Fed seems locked in to a rate hike at the meeting on July 26, but future rate hikes will depend on a few key data releases in the months ahead, including the Employment Cost Index on July 28, and the employment and inflation data that is released in August,” he said. “If these continue to slow at the pace that we have seen in the CPI data of the past couple of months, then the July hike may prove to be the final move of the cycle.”

Steve Wyett, chief investment strategist at BOK Financial, was a little more bullish, arguing that today’s inflation numbers will keep the hope “alive” for a soft landing—where inflation fades without the need for a job killing recession.

“The risks to the economy remain in place, but today’s data should provide the Fed with an indication they might not have to do much more,” he told Fortune. “This won’t stop the Fed from acting at their meeting later this month, but it does help reduce fears of a Fed that might have to get more aggressive with rates than currently expected.”