The latest reading of the Fed's preferred inflation gauge showed prices increased at a pace in line with Wall Street's expectations in July.

The core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 0.2 % from the prior month during July, in line with Wall Street's expectations for 0.2% and the 0.2% reading seen in June.

Over the prior year, prices rose 2.6% in July, matching June's annual increase and below analyst expectations for a 2.7% increase.

The report is the first look at inflation since Fed Chair Jerome Powell all but confirmed the Fed will cut rates next month during a speech in Jackson Hole, Wyo., saying the "time has come for policy to adjust." Powell added that his confidence had "grown" that inflation is heading back to the Fed's 2% goal.

Friday's report will do little to change Powell's assessment of the situation.

"A Fed rate cut in September is assured after Chair Powell’s Jackson Hole speech," Nationwide senior economist Ben Ayers wrote in a note to clients Friday morning. "But the further cooling of inflation could give the Fed leeway to be more aggressive with rate declines at coming meetings, especially if the labor market shows a steep deterioration."

Read more: Fed predictions for 2024: What experts say about the possibility of a rate cut

Economists have reasoned that while inflation's decline remains paramount for the Fed when considering cutting interest rates, concerns about the labor market deteriorating have also come into focus. This, Oxford Economics chief US economist Ryan Sweet told Yahoo Finance, puts a "smaller weight" on monthly inflation releases.

"It's not going to be a smooth, easy ride," Sweet said on Aug. 23. "There's going to be bumps along the road with the inflation numbers."

Still, Sweet noted the Fed's preferred inflation gauge remains within "spitting distance" of the Fed's target.

Investors are expecting a rate cut in September, but the debate remains on how much the Fed will cut. As of Friday morning, markets are pricing in a roughly 33% chance the Central Bank cuts interest rates by 50 basis points by the end of its September meeting, per the CME FedWatch Tool.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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