Slowing inflation seen making US Fed's July hike its last

Inflation is slowing rapidly enough to allow the Federal Reserve to stop tightening USmonetary 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 US central bank's policy rate fell after a Labor Department report showed consumer prices last month rose 3.0 per cent from a year earlier, a big step down from its 4.0 per cent pace in May.

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

With that core inflation figure still more than twice the Fed's 2 per cent target, traders continue to overwhelmingly expect policymakers to increase the benchmark rate a quarter point, to a 5.25 per cent-5.5 per cent 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.

"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."