Key facts
- July CPI data indicated easing inflation.
- The July jobs report showed job losses and a decline in labor force participation.
- These factors may decrease the likelihood of a September rate hike by the Federal Reserve.
- Inflation has remained above the Fed's target since 2021.
- Real average hourly earnings decreased by 0.2% from July 2025 to July 2026.
Encouraging Consumer Price Index (CPI) data for July, alongside a lackluster jobs report that showed job shedding and a drop in labor force participation, is likely to reduce pressure on the Federal Reserve to implement a rate hike in September. However, the Fed will consider another month's data before making its final decision.
Seema Shah, chief global strategist at Principal Asset Management, stated that the July CPI print, combined with the drop in payrolls, should lower expectations for a September hike but does not eliminate the possibility. She noted that a September hike remains a clear risk unless August's inflation data also shows subdued price pressures.
The softer inflation numbers for July are expected to set the tone for Fed Chair Warsh's upcoming speech at the Federal Reserve's annual conference in Jackson Hole, Wyoming. Warsh has consistently avoided providing specific guidance on what would prompt the central bank to raise rates, and moderating inflation could lessen the stakes of his decision-making.