A cooler-than-expected reading on inflation Wednesday was good news for Fed policy makers, but it isn’t likely enough to convince officials to cut interest rates just yet.

The question it does raise for today’s Federal Open Market Committee meeting is whether the moderation influences some officials to reduce a prior estimate of three cuts for the rest of 2024 to two instead of one.

The Consumer Price Index (CPI) rose 3.3% over the prior year in May — a deceleration from April’s 3.4% annual gain in prices.

The year-over-year change in so-called “core” CPI — which excludes volatile food and energy prices the Fed can’t control — was 3.4% compared with 3.6% in April and 3.8% in March.

The measures were cooler than economist estimates.

“Overall this is a good report,” Tendayi Kapfidze, chief corporate economist for Wells Fargo, told Yahoo Finance. “It shows the disinflation process is continuing.”

Yet this improvement isn’t likely to alter the cautious stance on the part of the Fed, which is widely expected at its policy meeting today to hold rates steady at a 23-year high.

What investors will be watching this afternoon is the release of a new projection about 2024 rate cuts in the form of a so-called “dot plot,” a chart updated quarterly that shows the prediction of each Fed official about the direction of the federal funds rate.

In March, the dot plot revealed a consensus among Fed officials for three cuts. Now that projection is in question following a string of sticky inflation readings during the first quarter and cautious commentary from Fed officials.

Most investors now expect just one cut, down from the six cuts they expected at the start of the year.

Fed officials on Wednesday will also release fresh forecasts for inflation, the economy and unemployment.

Fed Chair Jay Powell has made clear that, before cutting rates, the Fed will need more than a quarter’s worth of data to make a judgment on whether inflation is steadily falling toward the central bank’s goal of 2%.

The odds of a first cut in September rose following the CPI report Wednesday morning, with markets now pricing in a 63% chance.

The September meeting is viewed by many as an optimistic case for a first cut. For that to happen, two more inflation reports in the coming months would likely need to show improvement for the central bank to pull the trigger.

The good news from today’s CPI reading could give Powell some reason to offer optimism at his post-meeting press conference today, according to one Fed watcher.

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“I think this gives Powell the excuse if he wants to be dovish today,” said Peter Tchir, Academy Securities macro strategy head, told Yahoo Finance.

Tchir said he believes Powell wants to get one rate cut done before the November election and one or two after the election.

“Any sort of hike this year is completely off the table,” he added.

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