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July CPI shows 0.1% monthly rise, annual inflation 3.4% down from 3.5% in June, cutting September Fed hike odds to ~30%.
The consumer price index for July rose 0.1% month‑over‑month, pulling the 12‑month inflation rate to 3.4%—down from 3.5% in June and well above the Fed’s 2% target, prompting a sharp drop in market expectations for a September rate hike.
| At a glance | |
|---|---|
| CPI MoM | 0.1% ↑ |
| CPI YoY | 3.4% ↓ from 3.5% |
| PPI YoY | 4.7% ↓ from 5.5% |
| FedWatch Sep hike odds | ~30% ↓ from 55% |
The Bureau of Labor Statistics reported that headline CPI increased 0.1% in July, lowering the annual rate to 3.4% from June’s 3.5% [2]. The Producer Price Index for final demand was flat month‑over‑month, with its annual rate easing to 4.7% from 5.5% in June [3]. Both readings came in cooler than many analysts’ expectations, which had projected a 0.2% monthly CPI rise and a 3.6% year‑over‑year figure [3]. As a result, the CME FedWatch tool’s probability of a September rate hike fell from 55% before the releases to roughly 30% after [3].
Energy prices fell for a second straight month, with the gasoline index dropping 2.9% in July, offsetting earlier spikes linked to renewed hostilities near the Strait of Hormuz [3][4]. Despite the dip, gasoline still cost $4.07 per gallon, 16 cents higher than a month earlier [2][4]. Food and shelter costs remained elevated, with food prices up 3% and shelter up 3.2% over the past year [2]. Core inflation, which excludes food and energy, slipped to 2.5% in July from 2.6% in June, matching a post‑pandemic low recorded in early 2023 [4].
The cooler CPI and PPI readings eased pressure on rate‑sensitive equities and long‑duration bonds, as traders recalibrated the odds of a Fed tightening cycle. However, the still‑elevated inflation rate and recent oil market volatility mean the Fed remains data‑dependent, and further CPI or PPI releases could swing expectations again [3].
The July CPI shows inflation easing for a second month, but the pace remains above target, leaving the Fed’s next move uncertain and markets poised for further volatility around upcoming data releases.
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AI-assisted synthesis by the TrendWatcher Editorial Desk · sourced from 4 outlets · Aug 16, 2026 · How we report
The federal funds rate target range has been held at 3.5% to 3.75% since December 2025.
Some officials are concerned that persistent inflationary pressures, exacerbated by factors like AI-driven demand and supply chain disruptions, may require higher interest rates.
No, while Fed policy influences borrowing costs, the central bank does not directly set mortgage rates.
Traders on the Kalshi platform estimate a 76% probability that there will be no interest rate cuts throughout 2026.