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Inflation has remained stubbornly above the Federal Reserve’s 2% target on an annual basis. But recent economic data has helped fuel talk that the central bank should cut rates sooner rather than later.

Immediately after Thursday’s encouraging inflation data, which showed headline inflation falling month-over-month for the first time since May 2020, markets were pricing in about an 89% chance that the Federal Reserve would begin cutting rates at its September meeting, up from 75% the day before. according to CME Group data.

The data is the latest to support a Fed rate cut.

Friday, Bureau of Labor Statistics Data showed the labor market added 206,000 nonfarm payrolls last month, compared with more than 190,000 expected by economists. However, the unemployment rate unexpectedly rose to 4.1%, from 4% the previous month. That was the highest reading in nearly three years.

The core PCE price index, the Fed’s preferred gauge of inflation, showed that inflation slowed in May. The annual change in the core PCE index was 2.6 percent in May from a year earlier, in line with estimates and the smallest annual increase in more than three years.

“The decline in the consumer price index between May and June will not last, but it strengthens the case for the Federal Reserve to cut interest rates in September, especially as the labor market has weakened,” wrote Ryan Sweet, chief U.S. economist at Oxford Economics.

However, the economist warns: “We are wary of reading too much into the June CPI decline and do not believe it is a new trend.”

Seema Shah, head of global strategy at Principal Asset Management, agreed that the latest data “puts us firmly on track for a Fed rate cut in September,” but that “a July taper is still not on the horizon.”

“Not only would this raise questions like ‘what do they know about the economy that we don’t?’, but the Fed still needs to gather additional evidence of weakening price pressures to be absolutely certain about the path of inflation.”

To read more about the latest CPI figures, click here.