The Federal Reserve's next rate move has become more complicated as inflation remains above target while economic growth stays resilient. Former St. Louis Fed President Jim Bullard argues the Fed should use current economic strength to raise rates, while SoFi strategist Liz Thomas says tightening would do little to fix supply-driven inflation. Thomas characterized inflation as warm rather than hot and does not expect a rate increase at the Fed's September or October meetings, with December the earliest realistic possibility. Bullard sees the strong economy as an opportunity to fight inflation, noting that economic activity and the labor market remain solid. Markets are now assigning roughly a 25% to 30% probability of a September rate move, down from more than 50% following softer inflation and employment reports. Bullard warned that the Fed's preferred core PCE inflation gauge could still finish 2026 above 3%, far from its 2% objective, which would lead markets to say the Fed has abandoned its inflation target.
Fed rate hike expectations reduced, lowering the effective federal funds rate
Reduced rate hike odds push 10Y yield down
