The probability of a Federal Reserve interest rate hike in September has fallen to 34% after July headline inflation eased to 3.4%, but sticky Core Personal Consumption Expenditures forecasts suggest inflation pressures are not fully resolved. The Cleveland Fed's Inflation Nowcasting tool projects Core PCE to remain around 3.3% in July and 3.34% in August, well above the Fed's 2% target. Fed Chair Kevin Warsh and the FOMC may rely on higher long-term Treasury yields rather than immediate rate action, though persistent core inflation could eventually force a hike that pressures the stock market.
Sticky core inflation keeps rate hike risk alive, supporting higher policy rates.
Persistent core inflation may force the Fed to hike, pushing long-term yields up.
