The new head of the US Federal Reserve is set to avoid a clash with Donald Trump as cooling inflation eases pressure on the central bank to raise interest rates.

Official figures yesterday showed consumer prices climbed 3.4 per cent in the year to July – down from 3.5 per cent the previous month.

The drop suggested the Fed and its new chairman Kevin Warsh will keep US interest rates in the range of 3.5 per cent to 3.75 per cent next month.

That would avert a clash with Trump, who has argued for lower rates since becoming president.

‘No nasty surprises means Warsh can maintain his wait-and-see bias,’ said Matt Cornwell, a portfolio manager at Nedgroup Investments. 

The report followed news last week of surprise job losses in July, and suggested limited effects of the oil price shock sparked by the Middle East conflict.

But economists said a rate rise remained on the table as inflation was above the Fed’s 2 per cent target.

‘The report should further ease the Fed’s fears about an energy-driven inflation spiral,’ said Scott Anderson, chief US economist at BMO Capital Markets.

‘The Fed will need to see more evidence that core services inflation is truly moderating before they take their rate hike threat completely off the table.’