U.S. inflation data for June, including the Consumer Price Index (CPI) and the Producer Price Index (PPI), fell short of market expectations, significantly reducing the likelihood of a Federal Reserve interest rate hike at the end of this month.
According to the Chicago Mercantile Exchange's FedWatch on July 16, the probability of a 0.25 percentage point increase in the federal funds rate during the Federal Open Market Committee (FOMC) meeting on July 28-29 is just 11.2%. The chance of keeping rates unchanged stands at 88.8%. This marks a sharp decline from a 46.5% probability of a rate hike reported on July 13.
The drop in inflation expectations is attributed to recent economic indicators. The June CPI rose 3.5% compared to the same month last year, falling short of the market forecast of 3.8%. The PPI also decreased by 0.3% from the previous month, marking its first decline since August of the previous year.
However, the market has not completely ruled out the possibility of further rate increases. There remains about a 50% chance that the federal funds rate could rise at least once before September, indicating that expectations for a rate hike have shifted from this month to after September.
One variable to consider is the rising international oil prices. Following the resumption of U.S. maritime sanctions against Iran, oil prices have surged to around $85 per barrel, raising concerns that energy costs could drive inflation higher again.
Federal Reserve Chair Kevin Warsh reaffirmed the commitment to price stability during a Senate Banking Committee hearing on July 15. He stated, "While increased investment in artificial intelligence (AI) may push some prices higher, it does not necessarily lead to sustained inflation."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.