The Federal Reserve is poised to implement its first interest rate cut in four years, following the announcement that a critical inflation index remained stable in July.

Data released by the Commerce Department on Friday indicates a continued decline in price pressures within the US economy. The Fed’s favored measure of annual inflation was unchanged at 2.6 percent for July, defying economists’ predictions of an increase to 2.7 percent.

This week’s surprisingly positive economic data from the United States has contributed to the strengthening of the dollar on global currency markets, adversely affecting other currencies such as the British pound. On Tuesday, the pound fell 0.1 percent to $1.318 after reaching a two-year peak against the dollar, driven by expectations that the Bank of England will implement less aggressive rate cuts compared to the Federal Reserve in the months ahead, following its initial reduction in August.

Market traders adjusted their wagers on the likelihood of a 25-basis-point rate cut by the Fed in the upcoming month, raising the probability to 69 percent. In contrast, the odds of a 50-basis point cut diminished to 31 percent after the recent inflation data, as per the widely referenced CME FedWatch tool. Analysts anticipate at least three rate cuts from the Fed by the year’s end.

The yield on the benchmark ten-year Treasury bills increased by 0.6 basis points to 3.873 percent, marking its first weekly rise in three weeks. On Wall Street, major equity indices posted gains ahead of the extended Labor Day holiday weekend.

The Dow Jones Industrial Average achieved its 26th record close this year, advancing by 228.03 points, or 0.6 percent, closing at 41,563.08, resulting in a monthly increase of 1.8 percent. The more comprehensive S&P 500 index rose by 1 percent for the day and ended the month up 2.3 percent, while the tech-focused Nasdaq climbed 1.1 percent for the session and recorded a 0.7 percent increase over August.

The Federal Reserve aims for a 2 percent target for its core personal consumption expenditures index, which gauges the prices of various goods and services purchased by Americans, excluding food and energy.

The July measurements for both the monthly and annual personal consumption expenditures index aligned with forecasts, showing a core increase of 0.2 percent from June to July, while the overall figure, inclusive of food and energy, remained unchanged at 2.5 percent.

Olu Sonola, the head of US economic research at Fitch Ratings, expressed that a quarter-point interest rate cut is already “set in stone” for next month. He added, “however, the Fed is hoping the upcoming jobs report does not exert additional pressure for a 50-basis-point reduction. Consumer spending continues to unexpectedly outperform expectations, which strongly suggests that the economy remains robust with solid growth above the trend.”

The absence of any unexpected inflation pressures should facilitate a rate cut at the Fed’s next meeting on September 18, signifying the first monetary easing since the pandemic began. The US central bank has raised borrowing costs from just above 0 percent to a target range of 5.25 percent to 5.5 percent over the past three years and has maintained the Fed funds rate steady for the previous 12 months.

Jerome Powell, the Federal Reserve Chairman, indicated last week that “the time had come” to reduce interest rates in order to avert a substantial slowdown in the job market and mitigate a potential rise in unemployment.