Wall Street cuts September rate‑hike bets as inflation cools

The market now gives a 69% probability that the Federal Reserve will leave policy unchanged at its September meeting, down from expectations of two hikes just weeks earlier【1】. This shift follows a string of softer economic prints that have eased inflation concerns and nudged Treasury yields lower.

Softening data drives dovish turn

July’s consumer price index held at 3.4% year‑over‑year, matching economists’ expectations and continuing a downward trend from 4.2% in May and 3.5% in June【1】. Producer‑price inflation also eased, falling to 4.7% YoY from 5.5% in June【1】. Meanwhile, retail sales slipped 0.6% in July, signaling weaker consumer demand【1】. The labor market added to the picture, with non‑farm payrolls posting a loss of 23,000 jobs in the same month【1】. Together, these indicators suggest diminishing inflationary pressure, prompting traders to price out a September rate hike.

Market reaction and spillovers

The dovish outlook pushed the 2‑year Treasury yield down about 20 basis points since late July, a move that typically mirrors the Fed’s policy rate【1】. Equity markets responded positively, while the dollar faced modest weakness amid expectations of a flatter rate curve. Gold, often seen as an inflation hedge, rallied to a weekly high of $4,450.23 per ounce before pulling back to $4,311.22, reflecting both the fading rate‑hike bets and a brief profit‑taking episode【2】. The metal’s weekly performance underscores how closely commodity prices track shifts in monetary‑policy expectations.

What to watch

• August CPI release (Sep 10) – A higher‑than‑expected reading could revive rate‑hike odds.
• Fed’s September FOMC meeting (Sep 19‑20) – The policy decision will confirm whether the market’s 69% probability holds.
• 2‑year Treasury yield at 4.5% – A breach above this level could signal renewed expectations of tighter policy.

The latest data suggest the Fed may pause its tightening cycle, but the path forward hinges on whether inflation and employment trends stay on this softer trajectory or rebound, leaving the September decision—and its market impact—still very much up for grabs.