The Federal Reserve’s preferred measure of underlying US inflation rose at a tame pace in June and consumer spending remained healthy, encouraging signs for officials looking to cool inflation without breaking the economy.

The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.2% from May. From a year ago, it rose 2.6%, according to Bureau of Economic Analysis data out Friday.

Inflation-adjusted consumer spending rose 0.2%, while May’s increase was revised higher.

Treasuries rallied and stock futures remained higher as the inflation data came in mostly as expected, even as quarterly data Thursday suggested past figures might have been revised higher. May’s core PCE inflation reading was revised slightly higher but remained at 0.1% on a rounded basis.

On a three-month annualized basis, core inflation cooled to 2.3%, the least since December.

Friday’s report offers some encouraging evidence that the Fed’s tightening campaign is making its way through the economy without causing too much damage. While officials are widely expected to keep their benchmark interest rate unchanged at a two-decade high when they meet next week, investors are betting the first rate cut will come in September.

“From the Fed’s perspective, cumulatively, we think the data show enough progress — on both inflation and labor market conditions — for policymakers to open the door to a rate cut in September,” Rubeela Farooqi, chief US economist at High Frequency Economics, said in a note.

Read More: Fed Seen Signaling September Rate Cut at Next Week’s Meeting

Policymakers pay close attention to services inflation excluding housing and energy, which tends to be more sticky. That metric increased 0.2% in June for a second month, according to the BEA.

The report showed inflation-adjusted outlays for services and merchandise each rose 0.2%. Housing and utilities led increases in services spending, while vehicles and recreational items propelled advances in goods.

Signs of cooling in the labor market are starting to translate into less purchasing power. Wages and salaries rose 0.3% in June, half the prior month’s pace. On an inflation-adjusted basis, disposable income growth slowed to 0.1%.

The saving rate fell to 3.4%, the lowest since December 2022.

Additional data due next week, including the government’s monthly report on employment, will offer the latest insight on how well income growth is holding up.

This article was provided by Bloomberg News.