Investors should buy the latest rally in stocks as cooling inflation means lower peak interest rates, JPMorgan Asset Management's chief strategist says

• Investors should buy into the stock rally after July's promising CPI report, JPMorgan's David Kelly said.
• The dip in inflation suggests high prices are starting to roll over and peak interest rates may be lower than the Fed thinks.
• "I would be fully invested in equities at this point because I do think that equities can move higher here," he said.

Investors should buy into the current rally in stocks, as July's Consumer Price Index was a good sign that inflation is starting to cool and the peak for interest rates will be lower than the Fed expects, JPMorgan's assessment management chief David Kelly said.

July CPI clocked in at 8.5%, a slight decline from the previous month's 41-year-record of 9.1% inflation. To Kelly, it's a sign that sky-high prices are finally starting to roll over, which could mean more gains ahead for the stock market.

"I would be fully invested in equities at this point because I do think that equities can move higher here," he said in an interview on Bloomberg TV. 

Kelly also sees another positive CPI report for August with inflation showing more improvement than the official data. Meanwhile, inflation expectations in the Treasury markets are relatively tame at around 3%.

He now expects the Fed to issue a 50-point rate hike in September, a 25-point hike in November, and possibly stop hiking by year-end.

Some Fed officials have been wary about celebrating July's data. San Francisco Fed President Mary Daly said this week that it was "too early" for central bankers to declare victory on the inflation front.

But that may be due to the criticism the Fed received earlier on being behind the curve on inflation, rather than the economic data, Kelly said. 

"The problem is [the Fed has] been on a diet of humble pie all year. And that's what's causing them to be cautious in declaring any progress here," he said.