Consumer price growth slowed more than expected in the United States last month, setting the stage for a more dovish set of communications from the Federal Reserve when it releases its latest decision this afternoon. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 3.4 percent in May from the same period last year, up 0.2 percent on a month-over-month basis. This undershot consensus estimates among economists polled by the major data providers ahead of the release, which were set at 3.5 percent and 0.3 percent, respectively.

On a headline all-items basis, prices climbed 3.3 percent on a year-over-year basis, down from the 3.4 percent pace set in April, and were unchanged from the previous month. Americans paid 2 percent less for energy on a month-over-month basis, with lower gasoline prices pulling the headline print downward, while the shelter sub-index climbed 0.4 percent, with housing costs remaining the biggest contributor to overall inflation pressures.

Short-term Treasury yields are plunging, with both 2- and 10-year instruments pushing lower as investors raise odds on two rate cuts coming before year end. The dollar is reversing its gains, equity markets are rallying and risk-sensitive currencies are climbing.

Bottom line: An unexpectedly-swift cooling in underlying price measures should move Fed officials closer toward achieving the level of confidence needed to begin cutting rates, and help ratify Chair Powell’s consistent easing bias. With a raft of data releases set to drop over the next three months, September should remain a live meeting, with a significant contingent of investors expecting a move before the US election reaches its crescendo. Rate differentials should narrow against the dollar, generating short-term underperformance relative to other majors, and risk appetite will almost certainly rebound in the near term.