Mike Larson | Editor-in-Chief
If youâre worried about the Federal Reserve, you got a mix of good news and bad news yesterday. Tamer-than-expected inflation data reduced the chance of a Fed hike this month...but didnât move the needle much when it comes to hikes LATER in the year!
Take a look at MoneyShow Chart of the Day. It shows the implied likelihood of a Fed rate increase at the meeting that ends July 29, based on trading in the fed funds futures market. The chance of a 25-basis point hike (to a range of 3.75% - 4%) was hovering around 16% yesterday afternoon. That was down sharply from 41.7% a day earlier.
Target Rate Probabilities for the July 29 Fed Meeting
Source: CME FedWatch
The catalyst? We learned the Consumer Price Index (CPI) fell 0.4% in June, its first outright drop since the depths of the Covid pandemic in April 2020. After stripping out food and energy prices (to exclude the influence of the on-again/off-again war with Iran), âcoreâ inflation came in flat. A weak reading on services inflation also provided some encouragement.
So, whatâs the bad news? The risk of a hike before year-end is STILL elevated.
If you look at probabilities for the Fed meeting that ends Dec. 9, you see markets are pricing in a 41% chance the fed funds rate will be 25 bps higher then. Thatâs about where things stood both one week and one month ago.
Indeed, the new Fed Chairman Kevin Warsh testified before Congress yesterday that policymakers âhave no tolerance for persistently elevated inflation.â Coupled with comments from other Fed speakers, that suggests a 2026 hike remains firmly on the table. So, donât go breaking out the cheaper money confetti yet!
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The AI trade has been a more volatile influence on markets so far in 2026 â and this price action reveals the itâs starting to become more nuanced. Understanding that nuance is now important for understanding if the market can still rally without AI leadership, advises Tom Essaye, president of the Sevens Report.
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