July inflation data aligns with expectations, easing pressure on the Fed but leaving September rate hike odds at 35%.
US consumer prices rose 3.4% year-over-year in July, matching consensus estimates and offering little surprise to markets. Core inflation also held steady, reinforcing expectations that the Federal Reserve may pause rate hikes in September unless new data emerges.
Prior to the release, markets had priced in roughly even odds for a September hike, but the benign inflation print shifted sentiment, with traders now assigning just a 35% probability. The report follows a period of elevated yields, with the 10-year Treasury note nearing a critical 4.70% threshold that could trigger broader market volatility.
Geopolitical tensions, particularly the US-Iran conflict and its impact on oil prices, remain a wildcard. Persistent supply disruptions in the Strait of Hormuz could sustain upward pressure on energy costs, complicating the Fed’s policy calculus.