July inflation data came in as expected, leading investors to increasingly bet that the Federal Reserve will hold rates steady at its September meeting. The Consumer Price Index rose 0.1% in July and was up 3.4% year over year, while core CPI rose 0.2% and was up 2.5% year over year, both in line with economists' estimates. According to the CME Group's FedWatch tool, there is nearly a 62% chance the Fed holds rates within its current 3.50%-3.75% range in September, up from nearly 52% a day earlier. The odds of a hike declined from over 48% to roughly 38%, and there is still roughly a 45% likelihood of a quarter-point increase by the December meeting. The July jobs report also showed nonfarm payrolls declining by 23,000, well below estimates, further supporting the case for holding rates steady.
July inflation data in line with estimates lowers odds of Fed rate hike, keeping policy rate steady.
Reduced likelihood of Fed rate hike supports bond prices, leading to lower yields.
