U.S. labor costs increased moderately in the second quarter as private sector wage growth cooled, more evidence that inflation was back on a downward trend and could help facilitate an interest rate cut in September.

The employment cost index (ECI), the broadest measure of labor costs, increased 0.9% last quarter after rising by an unrevised 1.2% in the first quarter, the Labor Department's Bureau of Labor Statistics said on Wednesday.

Economists polled by Reuters had forecast the ECI would rise 1.0%. Labor costs advanced 4.1% on a year-on-year basis after climbing 4.2% in the January-March quarter.

The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.

The modest rise in the ECI last quarter is likely to be welcomed by Federal Reserve officials who are wrapping up a two-day policy meeting on Wednesday. The U.S. central bank is expected leave its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July.

Inflation slowed in the second quarter after surging in the first three months of the year.

Price pressures are ebbing following 525 basis points worth of rate hikes from the Fed since 2022. The government reported on Tuesday that job openings maintained their steady decline in June and hires dropped to the lowest level since 2020

(Reporting by Lucia Mutikani; Editing by Paul Simao)