- July's consumer price index was "benign and largely uneventful," with headline CPI easing to 3.4% from 3.5% in June, and month-on-month inflation rebounding to 0.1%.
- Core CPI, stripping out volatile items like energy and food, rose by 0.2% month-on-month and 2.5% year-on-year, both equaling expectations.
- Citi analysts said that a batch of inflation data this week did not present a reason for the Federal Reserve to take a more hawkish stance on interest rates at its September meeting.
- Softer-than-anticipated labor market data for July has dented forecasts that Fed officials will raise borrowing costs at its September meeting, with CME FedWatch showing a roughly 71% chance the Fed stands pat and about 28% probability of a rate hike.
- The analysts highlighted that underlying U.S. consumer price growth is trending down and oil prices are likely to moderate, arguing that "there’s no new hawkish data to force the committee back toward the hawkish end of its dot plot or to disrupt the "hold now" consensus into September."
Citi analysts suggest the Federal Reserve is unlikely to raise interest rates in September, citing recent inflation data that shows a headline CPI easing to 3.4% from 3.5% in June. The core CPI rose by 0.2% month-on-month, aligning with expectations, indicating stable inflation trends.1234
The analysts noted that the data does not support a hawkish shift, stating, "there’s no new hawkish data to force the committee back toward the hawkish end of its dot plot or to disrupt the 'hold now' consensus into September." They emphasized that the underlying U.S. consumer price growth is trending down and that oil prices are expected to moderate.
In July, the energy index fell by 1.5% month-on-month, despite a 14.7% year-on-year increase, with gasoline prices dropping 2.9% for the second consecutive month. The CME FedWatch tool indicates a 71% chance the Fed will keep rates steady, with a 28% probability of a hike, reflecting concerns over potential inflationary pressures from energy prices.67
Overall, the softer-than-expected labor market data has further diminished expectations for a rate increase, as analysts continue to monitor inflation trends closely.
“The data supports a "non-hiking bias" for the rest of 2026, rather than validating a hawkish turn from June. Energy prices fell 1.5% month-on-month but jumped 14.7% year-on-year, with gasoline dropping 2.9% for a second straight month.”
