Overview
- Markets have priced the September Fed decision as roughly a coin flip, with Fed funds futures and CME FedWatch showing near-even odds for a 25 basis-point hike versus holding rates steady.
- Trading sentiment shifted after last Friday's payrolls report showed a loss of 23,000 jobs and downward revisions of about 100,000 prior positions, weakening the case for immediate tightening.
- Rising oil and gold have pushed inflation risks higher after renewed Gulf shipping attacks and Iran’s statements on the Strait of Hormuz, increasing the chance headline CPI will surprise to the upside.
- Fed policy is visibly split: three officials dissented for a 25 basis-point increase at the July meeting while other regional presidents have publicly argued both for and against further moves.
- If July’s CPI comes in cooler than expected, markets are likely to tilt toward no September hike and relieve some pressure on bonds and stocks, while a hotter print would raise odds of a September increase and lift Treasury yields.