September Fed Rate Cut Odds Barely Change Despite Hotter-Than-Expected PPI
Fed funds futures show minimal shifts in September rate cut expectations after July wholesale inflation rises 0.9%, removing chances of a half-point reduction.
Despite July PPI data exceeding expectations with a 0.9% monthly gain, September Fed rate cut odds remain largely unchanged, though the chance of a half-point reduction is eliminated. Fed funds futures now indicate a 92.7% probability for a quarter-point cut.
September Fed Rate Cut Odds Barely Change Despite Hotter-Than-Expected PPI
The odds of a September Federal Reserve rate cut barely moved even after July’s producer price index (PPI) came in hotter than expected, though the chance of a half-point cut was removed entirely.
According to fed funds futures, the likelihood of a quarter-point reduction to 4.00%-4.25% now stands at 92.7%, slightly down from 94.3% just one day earlier. Meanwhile, the possibility of a double cut to 3.75%-4.00% has fallen to 0%, compared with 5.7% a day ago, according to the CME FedWatch Tool.
Hotter PPI Data Influences Expectations
The shift in market expectations follows the latest wholesale inflation report, which showed a 0.9% increase on the month—substantially higher than the 0.2% gain expected by economists polled by Dow Jones.
The PPI measures prices for goods and services at the wholesale level, often serving as a leading indicator for consumer price trends. While the data points to persistent inflationary pressures, traders appear to have priced in a limited impact on the Fed’s September decision.
Market Implications
- The removal of the half-point cut possibility indicates the Fed is unlikely to act aggressively in September despite inflation data.
- Traders continue to focus on interest rate-sensitive sectors, including financials, real estate, and tech stocks.
- Fed funds futures remain a key tool for investors to gauge market sentiment and anticipate monetary policy moves.
Bottom Line
Even with hotter-than-expected wholesale inflation, the probability of a modest September rate cut remains high, while more aggressive reductions are off the table. Market participants will continue to monitor upcoming economic data and Fed commentary for clearer guidance on monetary policy.
