CME FedWatch Prices 70.1% Odds of July Fed Hold, 64.9% Chance of September Hike

Financial markets are leaning toward the Federal Reserve holding interest rates steady in July after the latest US inflation data, while assigning higher odds to a rate increase in September.

CME FedWatch data on June 25 showed federal funds futures pricing a 70.1% chance that the Federal Open Market Committee will leave its benchmark rate unchanged at its July meeting. The probability of a rate increase was 29.9%, while the odds of a cut were 0.0%.

For the September FOMC meeting, markets were pricing in a greater likelihood of a hike. CME FedWatch showed a 64.9% probability of a rate increase, compared with a 35.1% chance of a hold and a 0.0% chance of a cut.

US personal consumption expenditures prices for May, released earlier on June 25, rose 4.1% from a year earlier. The core PCE price index, which excludes food and energy, increased 3.4% from a year earlier, matching market expectations.

Core PCE also rose 0.3% from the previous month, in line with forecasts. Core PCE is a key inflation gauge the Federal Reserve uses in setting monetary policy.

US first-quarter gross domestic product grew at an annualized 2.1% from the previous quarter, above the market forecast of 1.6%.

Labor data also came in stronger than expected. Initial jobless claims totaled 215,000, below both the market forecast of 225,000 and the previous reading of 227,000.

With inflation still elevated and growth and labor indicators also beating expectations, markets are pricing in a near-term pause while also reflecting the possibility of a later rate increase.