September Rate Hike Odds Plummet to 30.6% Amid Softer US Economic Data

Market expectations for another Federal Reserve rate hike have dropped significantly following a series of softer U.S. economic data releases. According to CME FedWatch pricing, the probability of a 25-basis-point hike has fallen to 30.6% as of August 17, down from 52.2% a week earlier. This leaves roughly a 69% probability that the Fed will keep its target range at 3.50%-3.75%. The implied hike probability had moved back to around 35% by August 18.

The shift in expectations is not due to one economic report, but rather several important indicators pointing in a similar direction. July payroll employment changed little at -23,000, while the unemployment rate stood at 4.1%. Consumer inflation slowed slightly, with headline CPI rising 3.4% year over year compared with 3.5% in June.

The minutes of the Federal Reserve's July 28-29 meeting will be released on August 19 and are expected to provide clues about how deeply divided policymakers were over inflation and whether recent economic weakness could reinforce the case for holding rates steady.