American investment banks just disclosed a record-smashing quarter, helped by surging trading activity around the U.S. election and a pickup in investment banking deal flow.

Traders at JPMorgan Chase, for instance, have never had a better fourth quarter after seeing revenue surge 21% to $7 billion, while Goldman Sachs’ equities business generated $13.4 billion for the full year — also a record.

For Wall Street, it was a welcome return to the type of environment craved by traders and bankers after a muted period when the Federal Reserve was raising rates as it grappled with inflation. Boosted by a Fed in easing mode and the election of Donald Trump in November, banks including JPMorgan, Goldman and Morgan Stanley easily topped expectations for the quarter.

But the grand machinery keeping Wall Street moving is just picking up steam. That’s because, deterred by regulatory uncertainty and higher borrowing costs, U.S. corporations have mostly sat on the sidelines in recent years when it came to buying competitors or selling themselves.

That’s about to change, according to Morgan Stanley CEO Ted Pick. Buoyed by confidence in the business environment, including hopes for lower corporate taxes and smoother approvals on mergers, banks are seeing growing backlogs of merger deals, according to Pick and Goldman CEO David Solomon.

Morgan Stanley’s deal pipeline is “the strongest it’s been in 5 to 10 years, maybe even longer,” Pick said Thursday.

Capital markets activity including debt and equity issuance had already began recovering last year, rising 25% from the depressed levels of 2023, per Dealogic figures. But without normal levels of merger activity, the entire Wall Street ecosystem has been missing a key driver of activity.

Multibillion dollar acquisitions sit at “the top of the waterfall” for investment banks like Morgan Stanley, Pick explained, because they are high-margin transactions that “have a multiplier effect through the whole organization.”

That’s because they create the need for other types of transactions, like massive loans, credit facilities or stock issuance, while generating millions of dollars in wealth for executives that needs to be managed professionally.

“The last piece is what we’ve been waiting for, which are M&A tickets,” Pick said, referring to the contracts governing merger deals. “We are excited about pushing that through to the rest of the investment bank.”

Another engine of value creation for Wall Street that has been slow in recent years is the IPO market — which is also set to pick up, Solomon told an audience of tech investors and employees Wednesday.

“There has been a meaningful shift in CEO confidence,” Solomon said earlier that day. “There is a significant backlog from sponsors and an overall increased appetite for deal-making supported by an improving regulatory backdrop.”

After a lean few years, it should make for a profitable time for Wall Street’s dealmakers and traders.

Federal Reserve Governor Christopher Waller said Thursday that the central bank could lower interest rates multiple times this year if inflation eases as he is expecting.

In a CNBC interview, the policymaker said he expects the first cut could come in the first half of the year, with others to follow so long as economic data on prices and unemployment cooperate.

“As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” Waller said during a “Squawk on the Street” interview with Sara Eisen.

Asked how many that could entail, he responded, “That’s all going to be driven by the data. I mean, if we make a lot of progress, you could do more,” which he said could mean three or four, assuming quarter percentage point increments.

“If the data doesn’t cooperate, then you’re going to be back to two and going maybe even one, if we just get a lot of sticky inflation,” he said.

Traders increased their bets for a slightly more aggressive pace of rate cuts following Waller’s remarks. Market-implied odds for a May move rose to about 50%, though June appeared to be the better bet, according to CME Group data. Expectations for a second reduction by the end of the year rose to about 55%, or about 10 percentage points higher than before he spoke.

At the core of Waller’s hopes for easing is a belief that inflation will ease further as the year goes on, despite several months’ of data showing stickiness in some key prices. The consumer price index slowed to a 3.2% core reading, excluding food and energy, for December, down 0.1 percentage point from the prior month though still well above the Fed’s 2% target.

“Right now, I think inflation is going to continue to come in towards our target. The year over year, stickiness that we saw in 2024 I think will start to dissipate,” he said. “So I may be a little more optimistic about inflation coming down than the rest of my colleagues, and that’s what’s driving my outlook for the path for policy.”

At the December meeting, Federal Open Market Committee members penciled in two cuts for 2025, though commentary after the meeting has pointed toward a cautious and patient approach.

The FOMC next meets Jan. 28-29, with markets pricing in almost no chance of a move.

“Well, January, we need to kind of see what’s going to happen. … We’re in really no rush to do things,” Waller said.