With inflation easing and the labor market cooling, the risks of keeping policy too tight are mounting. The CME Group now puts the implied odds of a September rate cut at 92.2 percent, reflecting growing expectations in the fed funds futures market that the Fed will respond to the softer data.

The cost of housing rose 0.2% in July, driving the overall increase in the index, while the price of food was unchanged as food at restaurants increased 0.3% but groceries fell 0.1%. The cost of energy fell 1.1% on a 2.2% drop in the price of gasoline.

U.S. consumer prices increased moderately in July, largely in line with expectations, though rising costs for goods because of import tariffs led to a measure of underlying inflation posting its largest gain in six months.