Probability for 75bps Rate Hike by Fed in September Drops Sharply to 35%

The odds for a 75 basis point rate hike by the US central bank in September made a sharp downturn to just 35%, down from 80% before the announcement of the Consumer Price for July yesterday.


The Consumer Price Index (CPI) of the United States of America slowed down to 8.5% in July, beating economists forecasts of 8.7% after hitting a fresh 40-year high of 9.1% in June.

Still, the annualized CPI remains around at its highest level in four decades.

However, core CPI which excludes volatile food and energy prices remained at 5.9% on a yearly basis.


After the U.S. inflation hit a fresh 40-year high of 9.1% in June, the market was incline to see a 75bps rate hike by the Federal Reserve in the September’s meeting, following Fed’s chair Jerome Powell’s vow to focus on bringing down inflation rate even at the cost of hurting its economy.

However, a lower-than-expected figure for July could prompt the Fed to rethink its move going forward to be less hawkish than the market had anticipated as the probability for a 75bps hike in September went down from 80% pre-CPI report to only 35% after.


Despite positive sentiment in the market that inflation had peaked, Citigroup remains cautious on the situation, stating that the report still points to very strong underlying inflation.

“Weakness was largely concentrated in components like used cars, hotel prices, and airfares, while shelter prices and general services remain very strong,” Citigroup wrote.


Stateside, Wall Street had its best day in three month as the Dow Jones Industrial Average rose 1.63%, to close at 33,309.51. The S&P 500 gained 2.13% to its highest level since early May. Meanwhile, the Nasdaq Composite rose 2.89% for its best close since late April and has now officially left the bear market.