Key inflation report looms on Thursday as traders grow more confident in Fed rate cut

A widely anticipated inflation report on Thursday may solidify expectations for the Federal Reserve to cut interest rates in coming months.

The consumer price index, or CPI, report for June is due out at 8:30 a.m. ET. Recent economic releases have suggested that inflation and economic growth are both cooling, including last week's report that unemployment in June ticked up to 4.1%.

Thursday's report comes after Federal Reserve Chair Jerome Powell delivered two days of testimony on Capitol Hill this week. The central bank chief did not indicate when exactly rate cuts will begin. However, Powell did say the Fed sees the risks to the economy as more in balance between inflation and recession and that the central did not need to wait until inflation hit the 2% level to cut rates.

Economists surveyed by Dow Jones are looking for CPI to rise 0.1% month over month, and 3.1% year over year. The core CPI, which strips out more volatile food and energy prices, is expected to rise 0.2% from May and 3.4% since June last year.

In May, CPI was unchanged month over month and up 3.3% on an annual basis.

Focusing on the trends of unemployment and inflation could bolster the case for rate cuts, said Matt Brenner, managing vice president, investments and product management at MissionSquare Retirement.

"The level on inflation is still elevated relative to the Fed's [2%] target. The level on unemployment is still very low historically at 4.1%. But the trend in both is that unemployment is gradually starting to pick up and that inflation continues its downward trajectory," said Brenner.

"For some time the Fed has been more focused on levels, and now it seems that they may be starting to tilt more towards a focus on trend. And if that's the case,