Implied yields on futures tied to the U.S. central bank's policy rate fell after a Labor Department report showed consumer prices last month rose 3.0% from a year earlier, a big step down from its 4.0% pace in May.

Underlying inflation, whose persistence has been particularly worrying to Fed policymakers, eased more than expected to 4.8%.

With that core inflation figure still more than twice the Fed's 2% target, traders continue to overwhelmingly expect policymakers to increase the benchmark rate a quarter point, to a 5.25%-5.5% range, at their July 25-26 meeting.

But they now see little more than a one-in-four chance of another rate hike before year's end, down from a more than one-in-three chance seen before the report, futures prices show.

"Clearly inflation is heading in the right direction, and this is showing that they've made significant progress in their battle to tamp it down," said Art Hogan, chief market strategist at B Riley Wealth in Boston. "Even if they raise rates at the end of this month, that may likely be the last time."

• US Inflation Falls to Two-Year Low of 3%