Fed officials meeting on June 18-19 are expected to debate the need for an interest-rate cut to shelter the United States economy from fallout caused in part by Mr Trump's escalating dispute with some of the US's largest trading partners. And unlike last month, Fed officials haven't explicitly pushed back against the market pricing in expected cuts. However, the Fed does not exclude any interest rate cuts, for example to boost inflation.
A closely-watched measure of USA inflation trailed forecasts in May as prices fell for used vehicles, reinforcing the case for the Federal Reserve to cut interest rates amid headwinds including trade and global growth. The core PCE price index has been running below the Fed's 2 per cent target this year.
The closely-watched core inflation that strips out food and energy also advanced a scant 0.1 percent last month.
"Today's inflation report keeps the Fed's options open".
But Kathy Bostjancic of Oxford Economics said the Fed will hold off before cutting the benchmark lending rate, and watch to see the impact of tariffs on the economy.
Barclays Plc economists Michael Gapen and Jonathan Millar also moved up their call for rate cuts to July and September.
The Dow Jones Industrial Average rose 58.33 points, or 0.22%, to 26,121.01, the S&P 500 gained 5.92 points, or 0.21%, to 2,892.65 and the Nasdaq Composite added 14.99 points, or 0.19%, to 7,838.15.
The Australian dollar traded near a 12-day low of $0.6925 plumbed on Wednesday, when it shed 0.45%. "There is heightened uncertainty about how this economy exactly is going to evolve over the next year or so, and I think that's what the markets are seeing and telling us as well".
Above: CME Group estimate of expectations for 2019 Fed Funds range.
Markets care about the inflation and Fed story because changes in interest rates, as well as the outlook for them, can have a significant influence over global capital flows as well as speculative short-term trading activity. Despite the near record lows in initial jobless claims and wage gains just 0.1% away from the best post-recession levels, the recent decline in payrolls has probably given the Fed as much concern as a decade of low inflation.
Trump criticized the Fed during a CNBC interview Monday, renewing his complaint over rate increases a year ago and calling it "very, very destructive".
"While we doubt that the Fed will carry through with the 100 basis points or so of policy easing now priced by markets, the longer trade tensions drag on, the greater the chance the Fed will be forced to respond aggressively", says ING's Knightley, in a note to clients after the release.