July 26 Reuters U.S. Federal Reserve policymakers on Friday got fresh evidence of progress on inflation, fueling expectations they will use their meeting next week to signal they could start cutting borrowing costs in September.

The personal consumption expenditures PCE price index edged up just 0.1 last month, the Commerce Department39;s Bureau of Economic Analysis reported.

That put the yearoveryear increase which the Fed targets at 2 at 2.5, after rising 2.6 in May.

Fed policymakers have said they want to be confident that inflation is headed sustainably back to 2 before they ease policy. The data Friday shows they are edging closer to that goal but are still above it, and they are widely expected to keep the policy rate in the 5.255.5 range next week to retain downward pressure on prices.

But U.S. central bankers, who have kept rates where they are since last July, are increasingly focused on the potential for harm to the labor market if they keep borrowing costs far above inflation for too long.

The unemployment rate, at 4.1, is still low by historical standards but has risen in recent months, and job growth has slowed.

From the Feds perspective, cumulatively, we think the data show enough progress on both inflation and labor market conditions for policymakers to open the door to a rate cut in September at next weeks FOMC meeting, wrote High Frequency Economics39; chief US economist Rubeela Farooqi.

After the data, traders of futures tied to the Fed…