We just got another sign inflation is cooling

New data shows labor costs are slowing, which could give the Fed more confidence that inflation is easing ahead of deciding on interest rate cuts.

• Employment costs rose less than estimated last quarter, new data from the Labor Department shows.
• The Fed often looks to the employment cost index for signs of inflation easing.
• In today's FOMC meeting, the Fed said inflation has made progress as investors predict a September rate cut.

US labor costs rose less than expected in the second quarter, giving the Fed new data to use toward a much-anticipated decision on rate cuts.

New Labor Department figures showed employment costs rose by 0.9% between April and June, slowing from a 1.2% rise in the first-quarter. Economists had estimated a 1% increase, according to a Bloomberg survey.

Growth in wages and salaries, a measure included in the index, eased to its slowest pace in over three years.

The data is a welcome sign that inflation is easing, and could add to the Fed's confidence that inflation has slowed enough to allow for rate cuts. The Fed often uses the employment cost index as an indicator of inflation.

In the past few weeks, Fed officials have consistently said they need more data on cooling inflation and a soft labor market before deciding when (and if) to cut interest rates.

In a Wednesday press release ahead of the FOMC meeting, the Fed said inflation is "somewhat elevated," showing inflation has eased closer toward the Fed's 2% target.

"The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance," the statement said. "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

That language marks a shift in the Fed's focus away from focusing wholly on inflation and toward ensuring both inflation and the labor market continue to cool before cutting rates.

Investors are widely expecting a September rate cut, and are eagerly awaiting any confirmation signs during Wednesday afternoon's Federal Open Market Committee meeting. Fed Chair Jerome Powell is expected to issue guidance on cuts during the meeting.

Some analysts, including those from Bank of America, think the Fed will continue to wait for more data on slowing inflation before making a decision on rate cuts.