Traders expect Fed to skip July rate hike as inflation cools

The benign readings may help assuage worries at the Fed that high oil prices from months of conflict in the Middle East are accelerating inflation in a more persistent manner, requiring a response from the U.S. central bank.

Oil prices, which had cooled in June as the U.S. and Iran held peace talks, are up sharply again in recent days after hostilities around the Strait of Hormuz have reignited. About 20% of the world's crude oil supply was shipped through that waterway before the start of the war in late February.

Fed Governor Christopher Waller said on Monday that the central bank may need to raise rates in the "near term" if underlying inflation, as measured by the core CPI, stayed hot.

Waller also said he would need to see several months of cooler inflation data to feel comfortable about not hiking rates at all. Though Waller does not speak for the Fed as a whole, his views have often been a bellwether for shifts in the U.S. central bank's thinking.