Quick Read
July’s back-to-back cooler CPI and PPI readings slashed September rate-hike odds from 55% to 32%, forcing investors to rethink hawkish Fed positioning.
Despite Strait of Hormuz headlines spiking crude, monthly average oil prices fell, but gasoline has already climbed from $3.87 to $4.07 since July.
Warsh’s Fed is now genuinely data-dependent, meaning every CPI and PPI release before September 18 will trigger volatility for rate-sensitive assets.
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Wall Street spent most of July bracing for a rate hike. When the ceasefire between the U.S. and Iran collapsed and hostilities resumed near the Strait of Hormuz, crude oil spiked on every headline, and traders started pricing in a hawkish September from Fed Chair Kevin Warsh. The CME FedWatch tool showed a 55% probability of a hike heading into this week — a real threat for anyone holding rate-sensitive stocks or long-duration bonds.
Then the data showed up. The Consumer Price Index, released Wednesday, and the Producer Price Index, released today, both came in cooler than the panic implied. That doesn’t mean the inflation fight is over. But it does mean the market’s rate-hike math just got a lot more complicated, and investors positioned for a hawkish Fed may need to rethink their assumptions.
The Numbers That Changed the Math
The Bureau of Labor Statistics reported Tuesday that headline CPI rose just 0.1% in July, pulling the annual rate down to 3.4% from June’s 3.5%. Today’s Producer Price Index for final demand was flat — unchanged month over month — with the annual rate cooling to 4.7% from 5.5% in June.
Neither report screamed “hike” and traders noticed: CME FedWatch odds of a September increase fell from 55% before the CPI release to 42% after. It crashed to 32% this morning.
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Granted, one data point doesn’t make a trend, and 3.4% is still well above the Fed’s 2% target. But the direction matters as much as the level, and July marked the second straight month the annual rate moved lower rather than higher.
24/7 Wall St.
Wall Street was braced for a September shock until cooling data sent rate-hike odds into a tailspin. Now, the market is scrambling to price in a Fed that is anything but predictable. © 24/7 Wall St.
