CPI Cooled. Warsh Went Volcker Anyway.

Two things happened on the same morning that changed the framework. CPI came in cool. Warsh testified hot.

JPMorgan posted record Q2 profit of $21.2 billion with markets revenue up 35% and IB fees up 30% to their highest since 2021. Goldman equities revenue hit a record $7.42 billion, up 72%.

IBM shares fell as much as 25% Tuesday morning, the largest intraday percentage decrease in the company's history, after issuing a profit warning citing AI capex reprioritization to hardware and memory chips.

DeepSeek is preparing an IPO filing this year or early 2027 targeting a pre-money valuation of $71 billion, up from $50 billion in early June.

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The Cool Print

Consumer prices fell 0.4% in June, the biggest monthly decline since April 2020. Annual inflation came in at 3.5% versus 3.8% expected. Core inflation was flat for the month, putting the 12-month rate at 2.6% versus 2.9% expected. The energy index slumped 5.7%, its biggest monthly drop since April 2020. Services excluding energy costs were flat with shelter rising just 0.1%. Apparel fell 0.6%. July hike odds dropped from close to 40% before the report to about 15% in early trading per WSJ. September odds fell to 63% from better than 75% a day earlier.

The Warsh Commitment

Warsh delivered the strongest anti-inflation commitment of any Fed chair since Volcker on the same morning core inflation went flat. Warsh: "It has been a tax on the American people and businesses. We plan on getting rid of that tax. That means we need a regime change in policy." Warsh: "The members of our Committee have no tolerance for persistently elevated inflation." Warsh: "If we get policy right, and we will, the inflation surge of the last five years will be a thing of the past." Warsh explicitly rejected the 2020 flexible average inflation targeting framework: "That central bank wasn't the first central bank to ask for a little more inflation and end up with a lot more. It was a mistake."

The AI Capex Question

Warsh devoted more attention to the AI buildout than any other feature of the economy. Warsh: "The rapid pace, which appears to be accelerating, reflects, in large part, the construction of data centers and the immense demand for the AI-related equipment and software that fill them." Warsh: "We at the Fed are monitoring the implications for inflation and the labor market." Warsh: "It seems inevitable that what is now called 'AI investment' will soon be called just 'investment.'" Warsh's prior public position holds that AI productivity gains will prove disinflationary. That framework is contested by Musalem, Logan, Waller, and Bowman. The CPI print showed computer software and accessories prices up more than 17% year-over-year, the largest gain on record.

The Two-Track Testimony

The CPI print removed the immediate July hike case. Warsh's testimony bound the Fed to kill inflation without endorsing a July move. Warsh has 24 hours before the Senate hearing Wednesday to shift the framework. Waller's Monday hike-readiness signal now operates against Warsh's regime-change commitment plus a cool CPI print. The three inflation shocks the FOMC minutes identified (oil, AI capex, tariffs) all remain unresolved. Only oil moved cooler in June. The Iran ceasefire collapsed the same week the print landed.

The Two-Track Signal

Watch whether Warsh calls out AI capex, tariffs, or oil as persistent inflation contributors in his Wednesday Senate testimony. Watch whether any second Fed governor endorses Waller's hike-readiness framework before Wednesday. Watch whether the July 29 core PCE print confirms or rejects the CPI cooling. The Fed meets before its preferred inflation gauge lands.

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JPMorgan posted record Q2 profit of $21.2 billion, or $7.70 per share, with revenue rising across all business units. Markets revenue surged 35% year-over-year. Equity trading revenue jumped 86%. Fixed-income trading revenue rose 6%. Investment banking fees climbed 30% to their highest since 2021. JPMorgan was among the lead underwriters on the SpaceX (SPCX) IPO. JPMorgan raised its 2026 net interest income forecast to $96.5 billion from $95 billion. Jamie Dimon: "This strength is being supported by several tailwinds, including AI-driven capital investment, fiscal stimulus and the benefits of more efficient regulation." Dimon flagged risks: geopolitical tensions and wars, sticky inflation, large global fiscal deficits and elevated asset prices. JPMorgan market cap crossed $920 billion.

Goldman Q2 profit hit $6.63 billion, or $20.98 per share, versus $14.48 expected. Equities revenue hit a record $7.42 billion, up 72%. Fixed income revenue jumped 32% to $4.59 billion. Investment banking fees rose 55% to $3.40 billion. Goldman advised on more than $1 trillion of announced M&A in H1 2026, a record pace for any investment bank. CEO David Solomon: "Momentum has accelerated throughout our businesses. We expect this flywheel of activity to continue." Bank of America (BAC) and Wells Fargo (WFC) also reported higher profits.

The Sunday PMD identified bank earnings as the "does Wall Street still want to finance the AI buildout" test. The Tuesday tape confirms the framework at record scale. Iran-driven volatility plus the SpaceX IPO plus AI-driven capex drove the operational sequence.

The Signal to Watch

Morgan Stanley (MS) Wednesday earnings above Q1 FICC and equities confirms the Iran-plus-SpaceX volatility framework as bank-wide rather than JPM-Goldman-specific.

IBM shares sank as much as 25% Tuesday morning after issuing a profit warning. It was the largest intraday percentage decrease for the company on record. CEO Arvind Krishna cited a shift in customer spending from software to AI hardware and memory chips. Krishna: "In the past few weeks of June, clients shifted their quarterly capital expenditures toward servers, storage and memory to secure supply-constrained infrastructure ahead of anticipated price increases." Krishna: "While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization." IBM plans to report Q2 revenue of $17.2 billion and adjusted EPS of $2.93 versus $17.9 billion and $3.01 expected.

The AI-driven memory chip capacity crunch has pushed prices on laptops, gaming consoles, and AI data-center servers up 20% to 40% over a short period. Apple (AAPL) CEO Tim Cook recently said price increases for iPhone and other devices were unavoidable. Cook: "There's less supply at a time when consumers want devices and the memory guys are passing along huge price increases." Emarketer's Jacob Bourne: "IBM got hit with a triple whammy. The AI buildout is concentrating capex in hardware like memory chips and diverting spend from software and services. Markets are going to punish legacy players showing signs of losing ground in the AI race."

The Q2 smartphone shipment framework PMD tracked yesterday captured the memory crunch at the consumer level. IBM extends the framework from consumer devices to enterprise mainframes. The framework converts from memory-shortage-hits-consumer to memory-shortage-reprioritizes-enterprise-capex.

The Signal to Watch

A second legacy software company issuing a profit warning citing AI capex reprioritization before Q3 earnings converts the IBM framework from IBM-specific to legacy-software-industry-wide.

Bloomberg reports DeepSeek has begun preparations for an initial public offering and may file as soon as this year, with a debut targeted for 2027. The Hangzhou-based company is in talks with accounting and banking advisors. DeepSeek is seeking additional funds in the private market ahead of the IPO. The startup has begun talks with new backers about a fresh round targeting a pre-money valuation of at least 480 billion yuan ($71 billion), up from roughly $50 billion in early June. DeepSeek is aiming to raise at least 10 billion yuan of additional funds, though the final amount could go several times higher.

DeepSeek is working with accounting firms to finish its financial report by end of December. The company plans to make the IPO filing near end of this year or early in 2027. Founder Liang Wenfeng's net worth more than doubled to $36 billion after the most recent fundraising, making him the richest AI founder ahead of Anthropic co-founder Dario Amodei and OpenAI's Greg Brockman. DeepSeek drew backing from Tencent Holdings, Contemporary Amperex Technology, and the National Artificial Intelligence Industry Investment Fund. Chinese open-weight models accounted for 41% of Hugging Face downloads this spring, surpassing US models.

The Saturday weekend wrap identified the AI capital stack test at every layer with six US hyperscalers issuing $244 billion in bonds this year. The DeepSeek filing extends the framework from Western hyperscaler bond issuance to Chinese equity IPO. The $71 billion pre-money valuation operates as the Chinese counter-anchor to Warsh's AI capex framework. Warsh's disinflation-through-AI thesis assumes US productivity leadership.

The Signal to Watch

Any DeepSeek pre-IPO financing round closing above the $71 billion pre-money target before Q3 earnings converts the framework from Chinese open-source challenger to Chinese public-market AI competitor at scale.

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Core CPI went flat in June with July hike odds falling from close to 40% before the print to about 15% by early trading. Warsh testified regime change and zero tolerance for inflation on the same morning. JPMorgan posted record $21.2 billion profit with markets revenue up 35% and IB fees up 30% to their highest since 2021. Goldman equities revenue hit a record $7.42 billion, up 72%. IBM shares fell as much as 25%, the largest intraday drop in company history. And DeepSeek is preparing an IPO filing at $71 billion. Warsh calling out AI capex, tariffs, or oil as persistent inflation contributors Wednesday tests whether the disinflation-through-AI thesis holds. Morgan Stanley Wednesday FICC and equities above Q1 tests whether the Iran-plus-SpaceX volatility framework is bank-wide. A second legacy software profit warning tests whether IBM is the first casualty or the only casualty.

Watch Warsh calling out AI capex, tariffs, or oil as persistent inflation contributors Wednesday. Watch Morgan Stanley FICC and equities above Q1. Watch a second legacy software profit warning citing AI capex reprioritization.

Those three tell you whether Warsh's disinflation-through-AI thesis survives Wednesday, whether the Iran-plus-SpaceX bank framework is JPM-Goldman-specific or bank-wide, and whether the IBM memory-crunch framework is the first casualty or the only one before the July 28-29 vote.