Fed's preferred inflation gauge shows prices increased in line with Wall Street's expectations in July

The latest reading of the Fed's preferred inflation gauge showed prices increased at a pace in line with Wall Street's expectations in July.

The core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 0.2 % from the prior month during July, in line with Wall Street's expectations for 0.2% and the 0.2% reading seen in June.

Over the prior year, prices rose 2.6% in July, matching June's annual increase and below analyst expectations for a 2.7% increase.

The report is the first look at inflation since Fed Chair Jerome Powell all but confirmed the Fed will cut rates next month during a speech in Jackson Hole, Wyoming, saying the "time has come for policy to adjust." Powell added that his confidence had "grown" that inflation is heading back to the Fed's 2% goal.

Friday's report will do little to change Powell's assessment of the situation.

Economists have reasoned that while inflation's decline remains paramount for the Fed when considering cutting interest rates, concerns about the labor market deteriorating have also come into focus. This, Oxford Economics chief US economist Ryan Sweet told Yahoo Finance, puts a "smaller weight" on monthly inflation releases.

"It's not going to be a smooth, easy ride," Sweet said on Aug. 23. "There's going to be bumps along the road with the inflation numbers."

Still, Sweet noted the Fed's preferred inflation gauge remains within "spitting distance" of the Fed's target.

Investors are expecting a rate cut in September but the debate remains how much the Fed will cut by. As of Friday morning, market's are pricing in a roughly 33% chance the Central Bank cuts interest rates by 50 basis points by the end of its September meeting, per the CME FedWatch Tool.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer .