Inflation rose 3.3% last month from a year earlier, slightly lower than the 3.4% that analysts had expected.
The consumer price index fell slightly from 3.4% in April. Core inflation, which excludes volatile food and energy prices, rose 0.2%, slightly less than expected.
Dow futures surged before the open of Wall Street trading on Wednesday as investors hope the latest figures strengthen the case for the Fed to start cutting interest rates later this year.
The latest consumer price index will be released the same day the Fed is scheduled to finish a two-day meeting where it is expected to plan how many interest rate cuts, if any, it will make later this year.
The Fed is expected to keep its benchmark interest rate unchanged at about 5.3% on Wednesday, the highest level in 23 years since July.
After its last meeting on May 1, the Fed released a statement saying it had “made no further progress” in returning inflation to the central bank’s 2% target.
Inflation has been uncomfortably high in the first three months of the year, fading hopes that it will continue to fall steadily as it did in the second half of last year.
However, consumer prices began to slow slightly again in April.
Consumer price inflation has slowed dramatically since peaking at 9.1% in mid-2022 but still stood at 3.4% in April, well above the Fed’s target.
A strong May CPI report would be a positive sign that policymakers may be open to cutting benchmark interest rates in the coming months.
Lower interest rates would ultimately translate into lower mortgage, auto loan and other borrowing costs for consumers and businesses.
Before Wednesday’s CPI report, most economists thought it was unlikely interest rates would be cut before September at the earliest.
Fed Chairman Jerome Powell is expected to stress at a news conference on Wednesday that policymakers need to see several more months of low inflation before considering cutting interest rates.
If economic growth slows and companies lay off large numbers of workers, the Fed will likely cut interest rates at a faster pace.
Fed policymakers are also due to release their updated economic outlook, which is expected to indicate they expect one or two rate cuts by the end of the year, down from three they forecast in March.
But the government’s jobs report released Friday showed that employment growth was solid in May, with employers across a range of industries adding jobs.
Following the report, Wall Street traders lowered their forecast for the Fed to cut interest rates this year from two to one.
Another issue Powell may address is whether the economy is starting to weaken.
Growth slowed sharply in the first three months of the year, falling to just 1.3 percent from 3.4 percent in the fourth quarter of last year.
With post wire
