Despite the declines, inflation is still well above the central bank’s 2% target, and most investors think there will be at least one interest rate hike before the end of the year, but likely not at the coming meeting.

“We pretty much hit everything on the CPI report and on the PPI report; just about everything was better than expected, substantially,” Dan North, a senior economist with Allianz Trade, told the Washington Examiner. “So you can’t ask for a whole lot more than that on the inflation front.”

CPI inflation fell one-tenth of a percentage point in July to 3.4%, and last month alone it only rose 0.1%. Inflation, as measured by the PPI, fell eight-tenths of a percentage point to 4.7% for the year ending in July — more than expected.

The implied odds of a rate pause in September are now over 65%, according to CME Group’s FedWatch tool, which calculates the probability of rate changes using futures contract prices for rates in the short-term market targeted by the Fed. A week ago, most investors expected a hike in September.

North pointed out that there was also a weaker-than-expected employment report that came out last Friday.

The government reported that the economy lost 23,000 jobs in July, a major surprise to the downside. Typically, declining payrolls would suggest the Fed is likely to ease monetary policy by cutting rates to spur more economic activity.

Friday’s report marked the first negative jobs report since February, and it followed a trend of increasingly weaker reports since a recent peak in March.

Another weaker jobs report would mean even more pressure for the Fed to hold off on raising interest rates.

However, given that inflation is still too high, Mark Hamrick, chief economic analyst for the Hamrick Brief, told the Washington Examiner that the Fed is likely to look through the employment data a bit and remain focused on bringing down inflation.

One of the most notable aspects of the Friday report was that the unemployment rate fell to 4.1%. That is very low by historical standards and suggests underlying strength in the jobs market.

“If you view this from the Fed’s perspective, their preferred metric of ‘a good jobs market’ is the unemployment rate, and the unemployment rate has barely budged in months — if anything, it’s actually come down,” Jai Kedia, an economist at the Cato Institute, told the Washington Examiner.

Hamrick said the July jobs report isn’t likely to deter the central bank from trying to quash inflation.

“I still think the job market is in a condition where the Fed is not tremendously concerned about it,” Hamrick said.

Still, it is worth noting that there will be more inflation reports that will come in before the mid-September meeting. There will also be another employment report for August that will be made public ahead of the Fed’s next meeting.

And gasoline prices have been a big reason for increases in headline inflation, so whatever happens with gas prices and the war in Iran this month could have an effect on the inflation reports the Fed is looking at next month.

“It’s important to remember that one of the primary reasons why the inflation data came in as it did was because of the decline in gasoline prices,” Hamrick explained. “But gasoline prices have rebounded, and while we are only not quite halfway through the month of August, that raises a risk that the August data will not be so benign.”

And even if the Fed pauses in September, that doesn’t mean there aren’t going to be rate hikes this year.

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The overwhelming majority of investors anticipate at least one rate increase before the end of the year, and there are about 20% odds of more than one increase, according to the FedWatch tool.

“Inflation is not fully defeated — it’s going the right way, which pushes the decision probably back to December, but as I say, inflation is not fully defeated,” North said.