Slowing inflation seen making Fed’s July hike its last

Inflation is slowing rapidly enough to allow the Federal Reserve to stop tightening U.S. monetary policy after what is still widely expected to be an interest-rate hike at its meeting in two weeks’ time, traders bet on Wednesday.

Implied yields on futures tied to the U.S. central bank’s policy rate fell after a Labor Department report showed consumer prices last month rose 3 percent from a year earlier, a big step down from its 4 percent pace in May.

Underlying inflation, whose persistence has been particularly worrying to Fed policymakers, eased more than expected to 4.8 percent.

READ: US consumer prices rise modestly in June; core inflation slowing

With that core inflation figure still more than twice the Fed’s 2 percent target, traders continue to overwhelmingly expect policymakers to increase the benchmark rate a quarter point, to a 5.25 percent-5.5 percent range, at their July 25-26 meeting.

But they now see little more than a one-in-four chance of another rate hike before year’s end, down from a more than one-in-three chance seen before the report, futures prices show.

READ: Fed leaves rates unchanged, sees two small hikes by end of 2023

“Clearly inflation is heading in the right direction, and this is showing that they’ve made significant progress in their battle to tamp it down,” said Art Hogan, chief market strategist at B Riley Wealth in Boston. “Even if they raise rates at the end of this month, that may likely be the last time.”