A report showing consumer price inflation cooled more than expected last month had traders on Tuesday erasing bets the Federal Reserve will raise borrowing costs any further, and piling into bets on rate cuts starting by May.

Traders now see almost less than a 10% chance the Fed will lift its policy rate any higher than the current 5.25%-5.50% range, based on pricing of futures contracts that settle to the Fed's target rate. They had priced in as much as 28% chance of a rate hike by January, before the report.

(Reporting by Ann Saphir, editing by Ed Osmond)