U.S. underlying inflation stirring; labor market tightening

WASHINGTON (Reuters) – U.S. underlying consumer prices increased by the most in nearly 1-1/2 years in June amid solid gains in a range of goods and services, but that did not change expectations the Federal Reserve would cut interest rates this month.

FILE PHOTO: People shop at an H&M store during the grand opening of the The Hudson Yards development, a residential, commercial, and retail space on Manhattan’s West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid/File Photo

Signs of a pick-up in underlying inflation and a strong labor market reported by the Labor Department on Thursday, however, further tempered financial market expectations of a 50 basis point cut at the end of the month and views that the Fed would lower borrowing costs at least twice this year.

A rate cut at the July 30-31 policy meeting, the first in a decade, is almost certain after Fed Chairman Jerome Powell on Wednesday told lawmakers the U.S. central bank would “act as appropriate” to protect the economy from rising risks such as trade tensions and slowing global growth.

“This argues against aggressive monetary stimulus from the central bank,” said Chris Rupkey, chief economist at MUFG in New York. “Fed officials are unlikely to cut interest rates more than one or two times this year no matter how badly the Trump economics team wants even more stimulus to stoke the economy’s engines of growth going into next year’s presidential election.”

President Donald Trump has repeatedly urged the Fed to cut rates because of low inflation and last

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