Key facts
- Traders are pricing in a 60% chance of a Federal Reserve rate hike by October.
- Bets on a September rate hike have fallen to approximately 45% from just under 50%.
- Consumer inflation rose 4.2% last month, aligning with economists' forecasts.
Traders in the U.S. interest rate market have slightly reduced their expectations for a Federal Reserve rate hike in September but maintain strong conviction for an increase by October. This sentiment follows a government report indicating that consumer inflation rose by 4.2% last month, a figure that met economists' predictions.
Market pricing now reflects approximately a 45% chance of a rate hike in September, down from just under 50% prior to the inflation data release. However, the probability of a rate hike by the Federal Reserve's October meeting stands at about 60%.
This shift in expectations comes amid broader market movements, including a selloff in U.S. Treasuries that pushed yields higher. The two-year Treasury yield, highly sensitive to Fed policy, increased by up to 11 basis points to 4.15%, its highest level this year, while the 10-year yield rose by six basis points to 4.53%. The dollar also strengthened.