Housing, autos drive US inflation higher in June

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"If last Friday's strong payroll report and a pause in the US-China trade war post-G20 didn't change the Fed's thinking on a July cut, we doubt today's modest upside surprise on core inflation will do the job".

Gus Faucher, chief economist at PNC bank, said there were sound economic reasons for a cut. And "a few" officials said that cutting rates just to push inflation a few tenths of a percentage point back to its target would also risk inflating bubbles in financial markets.

Mr Powell, giving evidence to a hearing in Washington, has come under pressure from Donald Trump to cut rates.

Excluding food and energy prices, core consumer prices rose by 0.3 percent in June after inching up by 0.1 percent for four consecutive months.

"However, firms report that they are finding it hard to pass on cost increases", he said. In the 12 months through June, the core CPI climbed 2.1% after advancing 2.0% in May.

The Consumer Price Index, which tracks costs for household goods and services, rose 0.1 percent compared to May, a notch above analyst forecasts, the Labor Department reported. The data still support the Fed's preferred inflation measure undershooting its 2% target in the second half of the year and "therefore support the dovish stance" when policy makers gather. It increased 1.6 per cent year-on-year in June after rising 1.8 per cent in May.

"As Powell also stated last month, 'Committee participants expressed concerns about the pace of inflation's return to 2%,'" Deutsche Bank economist Brett Ryan wrote in a note. Powell on Wednesday said "there is a risk that weak inflation will be even more persistent than we now anticipate".

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A key measure of US inflation, the core consumer price index will be released on Thursday.

Additionally, regional Fed presidents in Richmond, Dallas, Philadelphia and Cleveland have all cast doubt on the need to cut interest rates at all. Stocks on Wall Street were mixed.

"The labor market has not weakened in a meaningful way since the escalations in trade policy a few months ago", said Daniel Silver, an economist at JPMorgan in NY.

Visit Markets Insider for more stories. Rent of primary residence was up 0.4%.

Though the case for lowering borrowing costs isn't fully decided, reducing rates at this point would be similar to the Fed's efforts in the mid-1990s to nurse along a lengthy recovery rather than respond to a looming downturn.

The Fed chair said overall growth has also "moderated", and cited the possibility that "weak inflation will be even more persistent than we now anticipate". Prices for apparel tumbled in March and April after the government introduced a new method and data to calculate their cost. Used motor vehicles and trucks prices accelerated 1.6% in June after declining for four straight months. The cost of household services jumped 0.8 percent, the most in almost 30 years, as lawn and garden service costs soared 6.1 percent, the most since December 1997.

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