Wall Street is rapidly backing away from another Federal Reserve rate hike after fresh signs that the U.S. consumer is losing momentum. The probability of a 25-basis-point increase at the Fed's September meeting fell to 28.6% Friday, leaving investors increasingly positioned for rates to remain at the current 3.50% to 3.75% range. The shift followed a surprisingly weak July retail-sales report, which showed a 0.6% decline from June, the first drop in nine months and biggest in 14 months, badly missing economists' expectations for a 0.1% increase. Consumer confidence weakened at the same time, with the University of Michigan's preliminary August sentiment index dropping to 51.0 from 55.2 in July. July CPI rose just 0.1% month over month and 3.4% from a year earlier, while producer prices were unchanged after declining 0.1% in June. Fed-funds traders now assign a 71.4% probability to no change on Sept. 16, up sharply as hike odds have fallen from 50% one month ago.
JPMorgan Chase & CoThe article indicates reduced odds of a rate hike, implying the effective federal funds rate is likely to stay unchanged, which is negative for the yield.
Weak economic data and lower rate hike expectations lead to lower yields on 10-year Treasuries.
