The Federal Reserve is likely to proceed with its expected interest-rate cut next month, despite a projected modest uptick in U.S. inflation in July.

What Happened: Projections indicate that the consumer price index (CPI), due on Wednesday, will show a 0.2% increase from June for both the headline figure and the core gauge, which excludes food and energy. The annual metrics are expected to continue to rise at some of the slowest paces seen since early 2021.

The recent easing of price pressures has boosted the confidence of Fed officials that they can start to lower borrowing costs while shifting their focus towards the labor market, which is showing increasing signs of slowing, reports Fortune.

The July jobs report indicated a significant reduction in hiring by U.S. employers and a rise in the unemployment rate for the fourth consecutive month, triggering a key recession indicator and contributing to a global stock market sell-off.

If the CPI meets expectations, it would suggest that inflation continues on a downward trend, and economists anticipate a slight pickup after June’s unexpectedly low reading.

This reversal is largely expected to result from core services excluding housing — a key category monitored by policymakers. Some forecasters are also highlighting a potential upside risk to goods prices due to increased shipping costs.

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However, the long-awaited slowdown in shelter costs that began in June is likely to persist. This category makes up about a third of the overall CPI and is a significant determinant of the broader inflation trend.

Why It Matters: The anticipated rate cut by the Federal Reserve comes amidst a backdrop of slowing economic indicators, including a significant reduction in hiring and a rise in unemployment. The easing of price pressures has allowed the Fed to shift its focus towards these labor market issues.

The persistence of the slowdown in shelter costs, a major component of the CPI, is also a significant factor in the broader inflation trend.

Upcoming data, including the latest readings on inflation expectations, small business sentiment, industrial production, and new home construction, will provide further context for the Fed’s decision.

The scheduled speeches by regional Fed presidents Raphael Bostic, Alberto Musalem, Patrick Harker, and Austan Goolsbee will also likely shed light on the Fed’s current thinking and future plans.

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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.