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STORY: The S&P 500 and Nasdaq hit record highs on Thursday morning after a key measure of inflation unexpectedly fell, raising hopes for Federal Reserve rate cuts.

U.S. consumer prices fell for the first time in four years in June amid lower gasoline costs and moderating rents.

Data from the U.S. Labor Department showed the consumer price index dipped 0.1% in June, compared with the average 0.1% increase forecast by economists polled by Reuters.

It was the second straight month of tame CPI readings.

In the 12 months ending in June, the CPI climbed 3.0%. The annual increase in consumer prices has fallen sharply from a peak of 9.1% in June 2022.

The Federal Reserve launched an aggressive campaign of interest rate hikes to curb soaring prices.

But as inflation ebbs and a robust jobs market cools, investors anticipate the Fed could begin to cut borrowing costs in September.

Fed Chair Jerome Powell has acknowledged the recent improving trend in price pressures.

POWELL: "We just need to see more good inflation data, that's all."

But he told lawmakers this week he was not yet ready to declare inflation had been beaten and that he was waiting for "more good inflation data."