A key measure of U.S. inflation showed hints of moderating in March, but likely not by enough to dissuade the Federal Reserve from raising interest rates again next month.

The core consumer price index (CPI)—which excludes food and energy and is closely watched by the Fed—rose 0.4 percent from the prior month, following a 0.5 percent gain, in line with economists' estimates. Yet key measures of housing costs posted the smallest monthly increases in about a year and grocery prices dropped, the report from the Bureau of Labor Statistics (BLS) showed.

Investors initially reacted positively to the report before a rally in stocks and Treasuries cooled. Traders still largely bet on a 25 basis point (bps) rate hike at the Fed's May meeting, while maintaining wagers the central bank will cut interest rates later this year.