Inflation moved closer to the Federal Reserve’s target in August, paving the way for future interest rate cuts, the Commerce Department reported Friday.

The personal consumption expenditures price index, an indicator the Federal Reserve focuses on to measure the cost of goods and services in the U.S. economy, rose 0.1% for the month, putting the rate 12-month inflation rate at 2.2%, compared to 2.5% in July. and the lowest since February 2021. The Fed targets inflation of 2% annually.

Economists surveyed by Dow Jones expected PCE for all items to rise 0.1% month-over-month and 2.3% from a year earlier.

Excluding food and energy, core PCE rose 0.1% in August and was 2.7% higher than a year ago, the 12-month figure 0.1 percentage point higher than in July. Federal Reserve officials tend to focus more on the core as a better measure of long-term trends. The respective forecasts were 0.2% and 2.7% for underlying growth.

“All is quiet on the inflation front,” said Chris Larkin, managing director of E-Trade trading and investments at Morgan Stanley. “Let’s add today’s PCE price index to the list of economic data hitting a sweet spot. Inflation continues to remain low, and while economic growth may be slowing, there’s no sign it’s falling off a cliff.”

Although inflation figures indicated continued progress, personal spending and income figures came to light.

Personal income rose 0.2% month-over-month, while spending rose 0.2%. The respective estimates pointed to increases of 0.4% and 0.3%.

Stock market futures were positive following the report, while Treasury yields were negative.

The readings come just over a week after the Federal Reserve cut its benchmark overnight borrowing rate by half a percentage point to a target range of 4.75%-5%.

The progress in August came despite continued pressure from housing-related costs, which rose 0.5% month-on-month, the biggest move since January. Prices for services overall increased by 0.2%, while goods decreased by 0.2%.

It was the first time the central bank eased monetary policy since March 2020, in the early days of the Covid pandemic, and was an unusually large move for a Federal Reserve that prefers to move rates in quarter-point increments.

In recent days, Federal Reserve officials have shifted their focus from fighting inflation to an emphasis on supporting a labor market that has shown some signs of weakening. At their meeting last week, officials indicated the likelihood of another half a percentage point in cuts this year and then a full point in reductions by 2025, although markets expect a more aggressive path.