US inflation shows signs of moderating, giving Fed room to pause

U.S. inflation showed signs of moderating in April, giving the Federal Reserve room to pause interest-rate increases soon.

The consumer price index rose by 4.9% from a year earlier, the first sub-5% reading in two years, a Bureau of Labor Statistics report showed Wednesday. Excluding food and energy, the so-called core consumer price index also cooled slightly.

A narrower price measure often cited by Fed officials — tracking services that have boomed as the pandemic faded — showed an even more pronounced slowdown, registering the smallest monthly increase since mid-2022 as airfares and hotel costs declined.

U.S. stocks opened higher, Treasuries rallied and the dollar weakened.

The report suggests that inflation is cooling as a year’s worth of interest-rate increases and recent credit stress work their way through the economy. However, overall prices are still rising at a brisk pace and the job market remains robust.

The Fed will need to see more than one month of data to be confident that price pressures are on a sustained downward path, especially after officials hinted last week that they may be done hiking for now.

That said, Wednesday’s report will be one of several that factor into policymakers’ decision next month. They’ll also receive the CPI for May, as well as reports on the labor market and their preferred inflation measure, the personal consumption expenditures index.