By Ann Saphir

(Reuters) -Federal Reserve policymakers have reason to feel more confident that inflation is cooling after a U.S. government report on Wednesday showed consumer prices did not rise at all in May, potentially clearing the way for a start to interest-rate cuts before summer’s end.

The unexpectedly benign inflation report, which also showed underlying price pressures cooled to a level more consistent with the Fed’s 2% inflation goal, has triggered a jump in market-based expectations for a rate cut as soon as September, and another one in December.

“After three months of veering off-track, the disinflation bus is back on the road to 2%,” said Brian Jacobsen, chief economist at Annex Wealth Management.

U.S. central bankers wind up a two-day policy meeting on Wednesday and are universally expected to hold the policy rate in its current 5.25%-5.5% range, where it has been since last July.

But short-term interest-rate futures are now pricing in more than a 70% chance of a rate cut by September, up from only slightly better than a coin toss earlier in the day.

Traders also added to bets on a second Fed rate cut by December, with rate-futures pricing reflecting a rising but still less-than-50% chance of three cuts by the end of the year.

What’s unclear is how much weight Fed policymakers themselves will give the fresh data, published less than a hour before they began a second day of policy deliberations that will conclude before 2 p.m. ET.

Fed officials could respond by making smaller adjustments to their individual rate-path forecasts than they otherwise might have – with more perhaps sticking to two rate cuts this year, rather than penciling in just one or none as many analysts expected before the latest data.

They could also send a stronger signal by tweaking their consensus statement, which at the close of their last policy meeting noted a “lack of further progress” toward the Fed’s 2% inflation goal.

To Tim Duy, chief U.S. economist with SGH Macro Advisors, a change to that part of the statement is unlikely “unless they are very confident they are cutting in September.”

With uncertainty over what the next couple months of data will show, they may prefer to keep their options open, he suggested.

Jefferies Senior Economist Thomas Simons said the data was unlikely to influence the Fed’s decision or forecasts on Wednesday. “Their past experience in mischaracterizing inflation as ‘transitory’ is going to lead to extreme caution in trusting signs of good news,” he said.

To EverCore ISI Vice Chairman Krishna Guha, the fresh data is enough to lead the Fed to note “modest” progress on inflation in its post-meeting statement, but agrees that Fed Chair Jerome Powell will try to avoid fanning rate-cut hopes.

“The Fed chair does not always find it easy to hold back his inner dovish optimism,” Guha wrote. “But we think he will make a point this time of trying to strike a very careful tone at the press conference.”