Fed Interest Rate July Hike Odds Fall Below 17% Following Cooler Inflation

The latest U.S. CPI report has turned the market upside down. After June’s CPI came in lower than expected, the chances of a July Federal Reserve rate hike dropped from 46% to below 17%. However, markets still expect the Fed to raise rates twice before the end of 2026. 

This has pushed the Bitcoin price to around $65,259 while Ethereum moved above $1,920.

Cooler Inflation Changes Fed Expectations

The U.S. Consumer Price Index (CPI) for June rose 3.5% year over year, below the market estimate of 3.8%. Core CPI, which excludes food and energy prices, also slowed to 2.6%, beating expectations of 2.8%.

The lower-than-expected inflation quickly changed market sentiment. Before the report, many traders believed the Federal Reserve could raise interest rates at its July meeting. 

In fact, the CME FedWatch Tool showed the chances of a 25-basis-point rate hike had climbed to around 46.5% before the CPI data was released.

However, after the CPI release, those odds dropped below 17%, showing that investors now see a much lower chance of an immediate rate hike.

Two Rate Hike Later This Year

Although the chances of a July rate hike have dropped, investors are still not expecting the Federal Reserve to cut interest rates anytime soon. 

According to the CME FedWatch Tool, markets are fully pricing in no rate cut in July, while the odds of a September rate cut have fallen to 49.9%, down from nearly 76% before the CPI report.

At the same time, traders still expect the Fed to raise rates later this year. Current data shows a 59% chance of a rate hike in October, followed by a 73.4% chance in December.

This suggests that investors believe the Fed will continue to fight inflation if price pressures start rising again.

Fed Officials and White House Offer Different Views

Federal Reserve Governor Christopher Waller recently warned that another rate hike remains possible if inflation starts rising again.

Meanwhile, Kevin Hassett, Director of the National Economic Council, took the opposite view after the CPI report.

He argued there is “no excuse” for raising interest rates after inflation came in below expectations and credited recent economic policies for easing price pressures.

“personally, I think the Fed is running out of reasons to keep holding markets back.”

Meanwhile, lower inflation usually supports Bitcoin and other cryptocurrencies because it reduces pressure on the Federal Reserve to tighten monetary policy.