Rate hike odds collapse: July ~10%, September odds diverge sharply (17% CME vs 62% market activity vs 78% gold article vs 75% mortgage article)
Key Questions
What happened to July rate hike odds after June CPI?
Odds collapsed to around 10% from 34% last week as soft CPI data cooled immediate expectations.
Why do September hike probabilities diverge so sharply?
CME FedWatch shows 17% while other sources like market activity, gold articles, and mortgage reports cite 62-78%, reflecting uncertainty from Hormuz risks and Warsh's silence.
How might fresh PCE data change rate hike odds?
Accelerating inflation to 4.1% YoY could increase odds, with markets still pricing two hikes by year-end but at lower conviction.
What does the 2-year yield nearing 4.4% signal?
It indicates potential breakout amid OIS pricing of 27bps by year-end and resilient labor data like 208k jobless claims.
What are banks like BofA and Deutsche predicting for hikes?
BofA sees three hikes by December while Deutsche forecasts two, amid hawkish calls from Logan and Hammack.
How do prediction markets like Polymarket view July and 2026 hikes?
Polymarket shows 96% hold for July and 64% chance of a 2026 hike, contrasting with economist surveys expecting 100% hold.
What role does the Fed blackout period play now?
It adds suspense ahead of the July 29 FOMC, with focus on Powell's press conference and potential shifts from hawkish voices.
How do pending home sales and PPI affect rate-cut bets?
Pending sales plunged 5.4% and PPI saw its largest drop in 14 months, fueling some rate-cut speculation despite overall hawkish bias.
June CPI soft cut July odds to ~10% (down from 34% last week). PPI surprise slashed September odds to ~17% on CME FedWatch, but other sources show much higher probabilities: market activity 62%, a gold article cites 78%, and a mortgage article cites 75% from CME. This sharp divergence reflects uncertainty from Hormuz risk and Warsh's silence. Markets still price two hikes by year-end but with lower conviction. Fresh PCE data showing inflation accelerating could increase odds. OIS pricing ~27bps by year-end. 2-year yield eased from five-month highs but now nearing key breakout at 4.4%. BofA predicts three hikes by December, Deutsche two. Jobless claims at 208k reinforce labor resilience. Pending home sales plunged 5.4% raising some rate-cut bets. PPI largest drop in 14 months. Focus on July 29 FOMC. Logan's hike call adds hawkish pressure. Hawkish voices from Hammack, Logan, Jefferson persist. Powell's press conference on rate hike could shift odds. Warsh's regime change call reinforces hawkish bias. Crude at $80 may rebuild inflation expectations. Industrial production miss fuels rate-cut bets. A new Reuters poll now shows all 104 economists expect hold for rest of 2026, a significant shift from an earlier poll where two-thirds saw high probability of a hike this year. Another prediction market shows 63% chance of hike and 9 of 18 officials projecting hike. Polymarket shows 96% hold probability for July 29; CME FedWatch ~90% hold. A new Polymarket reading assigns 64% probability for a 2026 rate hike. Yardeni deep dive reinforces hawkish case. Fed minutes from June challenged rate-cut expectations. A new counterpoint from State Street's Simona Mocuta argues against 2026 rate hikes, citing housing pain and moderating wage inflation. Central Bank Watchlist confirms ~80% hold for July and ~50% September hike odds, reinforcing September as battleground. FX markets coiling ahead of NFP and Fed signals. Fed revamps inflation tracker, potentially altering rate path expectations. Swap market now shows 31% probability of a July hike, up from ~10%, contrasting with economist survey 100% hold. Yardeni's team argues a rate hike is still on the table, framing Warsh's priority as underlying inflation over PCE. Prediction market uncertainty on Warsh's press conference dropped to 59% but with divergence between Kalshi and Polymarket.