U.S. consumer inflation dropped more than forecast in May, as the Federal Reserve considers pausing its aggressive interest rate hike campaign on Wednesday.  

Consumer prices eased to 4.0% in May year-on-year from 4.9% in April, the smallest in more than two years, coming beneath analysts’ projections of 4.1%. Core CPI, which excludes volatile items like food and fuel, edged lower to 5.3% from 5.5%.

On the monthly basis, U.S. CPI soared 0.1% last month, following a 0.4% gain in April, the Labor Department said on Wednesday. Analysts had predicted a 0.2% rise.

The slowdown in inflation was buoyed by declines in the costs of energy products and services, including gasoline and electricity, according to the Labor Department.

In fact, still there are inflationary pressures as inflation is still far from the Fed’s 2% goal, which suggest the Fed would hold its interest rates tomorrow while maintain its hawkish stance.

Markets are currently seeing an 84% chance that the Fed will hold rates on Wednesday, according to the CME’s FedWatch tool. Yet swaps are pricing in an almost quarter-point rate increase during July’s meeting.

Last month, the Fed raised interest rates by 25 basis points to a range of 5% to 5.25%, the highest level since 2007, but the ease in inflation and labor market slowdown provides the Fed some room to skip an interest rate increase.   Following the release of U.S. CPI data, gold edged up to hit a new session high at $1970 an ounce, yet it found some resistance to slide to $1952.