Fed July Hike Odds Collapse
Cooling inflation data reduces the probability of a near-term Fed rate hike, making a July increase unlikely
Too little corroboration in the last 3 days to call a trend (46 articles). Watching for it to gain traction.
A dominant theme across 47 articles emphasizes that recent inflation data has cooled sufficiently to reduce near-term Fed rate hike expectations, making a July increase unlikely and creating doubt about the timing of a September move. Sources argue that sequential softening in inflation readings has materially weakened the case for aggressive near-term monetary tightening.
When inflation expectations decline relative to prior consensus, the real yield component of Treasury yields typically compresses as investors reduce their compensation for inflation risk and lower their expectations for the terminal rate. This structural repricing of inflation risk affects the relative attractiveness of fixed-income assets and influences how much yield investors demand across the maturity spectrum.
Mainstream financial press is carrying this — attention has broadened beyond specialist outlets.
"Although the case for a September hike remains strong, sequentially softer inflation data lessens the likelihood of it being delivered. For that reason, we have increased our scenario probability of 'just right' to 60%, which now becomes our base case, and have reduced the probability of our most hawkish 'too hot' scenario."
"Goldman Sachs has warned investors against betting on the Fed hiking rates next month after the CPI data showed cooling inflation. The recent US jobless claims also showed that the labor market is becoming weak, which could also prompt the Fed to trim rates."
"The U.S. stock market hit all-time highs Thursday on new data that showed inflation cooled in July, as well as a decline in oil prices."
"The more the headlines are 'inflation coming down,' I think that keeps expectations in check... Barkin said the tendency by financial markets and the public to focus on a recent slowdown in price pressures could ease the need to raise rates despite inflation having remained above the Fed's target."
"Fresh data showed US producer prices were unchanged in July as goods prices fell and the cost of services increased marginally, while the number of Americans filing claims for unemployment benefits increased moderately last week, pointing to a stable jobs market. Traders are pricing in a 63% chance that the Fed will keep interest rates unchanged at its meeting next month"
"U.S. retail inflation rose 0.1% in July after declining in June, while annual inflation slowed to 3.4% from 3.5%. The data lowered the implied probability of a September Fed rate hike to 36%, according to CME FedWatch."
"producer price data reported a 4.7% gain, undercutting the expected 4.9% rise in July"
""In-line inflation will keep the 'no need to hike rates' narrative that took hold after last week's jobs report intact," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management."
"Stocks also received a lift from today's favorable CPI report, which supported T-note prices and reduced the odds of a rate hike at the next FOMC meeting to 39% from 51% on Tuesday. T-note prices received a boost today from the favorable CPI report, with the core CPI easing to match a 5.5-year low."
"Rate-hike odds and bond yields fell today (cooling CPI)"