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By Richard Leong
July 14 (Reuters) - Traders on Friday reduced their view the Federal Reserve would raise rates again before year-end following weaker-than-forecast data on consumer prices and retail sales in June, according to interest rates futures.
The disappointing data supported the caution raised this week by several policy-makers, including Fed Chair Janet Yellen about the softening in inflation since February.
“You have seen them change their tone already. This keeps the Fed on a gradual pace” for further rate increases, said Eric Souza, senior portfolio manager at SVB Asset Management in San Francisco.
Just last month, the U.S. central bank raised interest rates for a second time in 2017, downplaying the weakening in price growth amid one-time factors. It signaled it was open to another rate hike and prepared to reduce its $4.5-trillion balance sheet by year-end.
The fourth straight below-forecast reading on the consumer price index in June pushed inflation further away from the Fed’s 2-percent goal. It also raised speculation that a third rate hike is out of Fed’s reach.
The Labor Department said earlier Friday the CPI grew 1.6 percent from a year earlier in June, marking the smallest year-over-year gain since October 2016.
At the same time, retail sales unexpectedly fell by 0.2 percent last month, the Commerce Department reported.
At 10:12 a.m. EDT (1412 GMT), federal funds futures implied that traders saw a 53-percent chance the Federal Reserve would raise key overnight borrowing costs by at least a quarter point at its Dec. 12-13 meeting, down from about 55 percent at Thursday’s close, according to CME Group’s FedWatch program.
Their implied view fell to 47 percent shortly after the release of the latest CPI and retail sales data.
Reporting by Richard Leong in New York; Editing by Jeffrey Benkoe and Nick Zieminski