US consumer prices rose 3.1% in the year to August, according to the Labor Department's Bureau of Labor Statistics reported Tuesday, a slowdown from July as energy costs eased. Core inflation held near 3%.

The reading landed just below the 3.2% median forecast of economists surveyed by Bloomberg. Gasoline and household energy prices retreated from the summer spike driven by tensions in the Strait of Hormuz, offsetting continued gains in shelter and services costs that have kept core inflation stubbornly above the Fed's 2% target.

The report was released two days before the Federal Open Market Committee concludes its September meeting on Wednesday. Futures pricing tracked by CME Group's FedWatch tool showed markets assigning better than 85% odds of a quarter-point cut, which would lower the benchmark rate to a range of 4% to 4.25%.

Tariff-related goods inflation remained a wildcard in the data. Wall Street equities and Treasuries rallied in early trading after the release, with the S&P 500 rising and the 10-year yield falling as investors interpreted the figures as clearing the path for policy easing.

A White House spokesperson welcomed the cooling, while economists at Goldman Sachs cautioned that tariff pass-through could push prices higher into the autumn. Fed Chair Jerome Powell has repeatedly stressed the central bank's dependence on incoming data. The August CPI print, alongside a softening labour market, gives policymakers cover to begin lowering rates while remaining watchful of persistent services inflation.