After the release of fresh US inflation data, the Federal Reserve appears to see no urgent need to raise rates at its upcoming meeting in mid-September.
Consumer prices rose 3,4% year-on-year in July, below June's reading of 3,5%. Core inflation, excluding volatile components, slowed to 2,5% from 2,6%.
Traders increased bets on keeping the current federal funds rate range of 3,50–3,75% at the September 15–16 meeting. The probability of a hike is now estimated at 38% according to CME futures.
At the same time, analysts note that the core PCE measure, which the Fed prefers, may still remain above 3%. This does not provide full confidence that policy is already sufficiently tight.
At the July meeting, the regulator voted 9–3 to hold rates. Three dissenters and some regional Fed presidents continue to advocate for a hike.
Inflation has remained above the 2% target for more than five years. Additional pressure comes from the aftermath of last year's tariffs and the situation in the Middle East, affecting fuel prices.
Fed Chair Kevin Warsh and New York Fed President John Williams expect further inflation slowdown as these factors ease. But the final decision in September still looks close.
What will ultimately tip the scales — fresh data or persistent risks?
Markets are currently leaning toward a pause, but by year-end many participants still factor in the need for rate hikes to bring inflation back to target.
