(Reuters) - Federal Reserve policymakers may feel more confident that inflation is back on a downward path after a U.S. government report showed consumer prices did not rise at all in May, potentially paving the way for interest-rate cuts in coming months.
U.S. central bankers, who wind up their meeting on Wednesday, are universally expected to make a decision to hold the policy rate in its current 5.25%-5.5% range.
But the unexpectedly benign inflation report, which also showed underlying price pressures cooled to a level more consistent with the Fed's 2% inflation goal, could set them up for a rate cut as soon as September, and another one in December.
"After three months of veering off-track, the disinflation bus is back on the road to 2%,"said Brian Jacobsen, chief economist at Annex Wealth Management.
Short-term interest-rate futures are now pricing in nearly a three-to-one chance of a rate cut by September, up from only slightly better than a coin toss earlier in the day.
Traders also added to bets on a second Fed rate cut by December, with rate-futures pricing reflecting a rising chance but still less-than-50% chance of a third rate cut by the end of the year.
(Reporting by Ann Saphir with reporting by Chuck Mikolajczak; Editing by Andrew Heavens and Chizu Nomiyama)
