Analyst: CPI Data Skews Dovish, Fed's July Rate Hike Expectation Dashed

BlockBeats News, July 14th. Analyst Justin McQueen stated that after Federal Reserve Governor Waller's hawkish comments on Monday, hinting that a strong core CPI performance could support a near-term rate hike, the US inflation data released on Tuesday sent a clear dovish signal.

The data showed that the June core CPI remained flat month-over-month, below market expectations of a 0.2% increase. The year-over-year inflation rate was 2.6%, also below expectations. This outcome significantly reduced the urgency for the Federal Reserve to raise interest rates further in the short term. In terms of market pricing, the expectations for a July rate hike have significantly cooled off. The implied probability of a July rate hike in the interest rate market has fallen to about 15%, essentially returning to the level before Waller's speech, indicating that investors have almost ruled out a July rate hike. Although this does not mean that the possibility of further policy tightening this year has completely disappeared, the threshold for another Fed rate hike has significantly increased.

Analysts believe that unless a escalation in the Middle East leads to another disruption in energy supply, causing a sharp increase in oil prices and rekindling inflationary pressures, the Federal Reserve is more likely to keep interest rates unchanged for the near future, with the possibility of a rate hike greatly diminished.