By Ann Saphir
Aug 12 (Reuters) - Federal Reserve policymakers may feel little fresh urgency to raise interest rates in September after a government report showed inflation cooled for a second straight month in July, but they may take little comfort that policy is tight enough to keep the easing trend going.
The consumer price index rose 3.4% in the 12 months through July, the Bureau of Labor Statistics reported on Wednesday, in line with economist expectations. Excluding the volatile food and energy
components, the so-called core consumer price index increased 2.5% in the 12 months through July after climbing 2.6% in June.
Underneath the hood, there were some indications of broadening inflation. A sharp drop in hotel prices -- unlikely to be sustained -- drove much of the month-over-month easing in core inflation, and there were more categories of core goods that saw prices increasing than in June, noted Inflation Insights founder Omair Sharif. Technology prices, driven by demand for artificial intelligence, jumped.
The Fed targets 2% inflation, though by a different measure -- the 12-month change in the personal consumption expenditures price index. Sharif and other analysts estimate that even with the deceleration in July CPI, the Fed's preferred measure of underlying inflation still looks on course to be 3%.
In a 9-3 vote last month, Fed policymakers left short-term borrowing costs in their 3.50%-3.75% target range where they have been since December. Chairman Kevin Warsh has said little about what would move him to support a change in the policy rate, leaving investors to listen more closely to how his colleagues see the outlook.
In the weeks since the decision, July's dissenters and a couple of other Fed bank presidents who do not vote this year on policy have made the case for a rate hike given still-too-high inflation.
The influential chief of the New York Fed, John Williams, notably has said he expects inflation to continue to ease, allowing the Fed to leave rates unchanged.
"Without forward guidance, the September decision will likely remain a close call until the very end," wrote Fitch Ratings' head of U.S. economics, Olu Sonola. "It will not be a slam dunk: whether it is a hold or a hike, both hawks and doves will find enough in the data to make their case."
After Wednesday's report traders added to bets favoring no change to interest rates at the Fed's September 15-16 meeting, a view that had begun to take hold last Friday after a report showed the economy unexpectedly lost jobs last month.
But traders still are pricing a more than one-in-three chance of a rate hike next month, based on Fed funds futures contracts traded at CME Group, and remain convinced the Fed will need to raise rates by the end of this year to bring down inflation that's been running above the Fed's target for more than five years.
(Reporting by Ann Saphir; Editing by Joe Bavier and Andrea Ricci )
