Aug 30 Reuters Federal Reserve policymakers on Friday got fresh confirmation that inflation is continuing to ease, opening the way for a first interest rate reduction next month as they shift their focus to preventing further cooling in the labor market.

The personal consumption expenditures PCE price index rose 2.5 from a year earlier in July, the Commerce Department reported, matching June39;s gain. Over the most recent three months, the annualized reading on the Fed39;s preferred gauge of inflation is well below its 2 goal.

The latest inflation reading was a slightly better showing than had been generally anticipated when Fed Chair Jerome Powell said last week that the time has come to cut rates, after a battle with decadeshigh inflation that saw the U.S. central bank raising rates aggressively in 2022 and 2023. It has kept its policy rate in the 5.255.50 range since last July.

The recent price trends confirm that the end of the Fed39;s inflation fight is coming into view, assuring a rate cut at the Sept. 1718 policy meeting, Ben Ayers, senior economist at Nationwide, wrote. The further cooling of inflation could give the Fed leeway to be more aggressive with rate declines at coming meetings, especially if the labor market shows a steep deterioration.

After the release of the report, which also showed consumer spending rising solidly, traders added slightly to bets that the Fed will stick to a quarterpercentagepoint reduction at first, but deliver a bigger…