Federal Reserve maintains interest rates as July rate cut odds plummet

The June inflation report has reinforced market expectations for the Federal Reserve to keep interest rates steady. Odds of a quarter-point rate cut in September have risen to 59.9%, while the likelihood of no change in rates in July stands at 97.4%. The CME FedWatch Tool shows traders are betting on a more stable monetary policy.

The June inflation report has solidified market expectations that the Federal Reserve will maintain interest rates. The probability of a rate cut in September has climbed to 59.9%, while the likelihood of no change in rates in July stands at 97.4%, according to the CME FedWatch Tool [1].

Inflation rose in June, increasing by 2.7% year-over-year, surpassing the Federal Reserve's target of 2% annual inflation [1]. This uptick in inflation, coupled with the expected impact of tariffs on prices, has complicated the Fed's outlook on interest rates. Higher interest rates are designed to curb inflation by increasing borrowing costs.

President Donald Trump has been vocal in his criticism of the Fed's monetary policy, urging the central bank to lower interest rates by three points to stimulate economic growth and potentially reduce the cost of servicing the national debt [2]. However, the Fed has been cautious due to concerns about tariffs reigniting high inflation post-pandemic.

Economists at Wells Fargo Securities suggest that the Fed is likely to begin cutting rates at its September meeting, as the gradual softening in the labor market indicates that monetary policy remains restrictive [1]. They note that tariff-related inflation could be temporary, making the worst-case scenarios around the inflation outlook increasingly unlikely.

The upcoming week brings a fresh batch of inflation data, which could further influence the Fed's decision-making process. Traders will also be closely monitoring manufacturing and retail sales data [3]. The earnings lineup for the week includes quarterly reports from several major companies, such as Airbnb, Biogen, and Cisco Systems [3].

In summary, the June inflation report has reinforced market expectations for the Federal Reserve to keep interest rates steady. The probability of a rate cut in September has risen, while the likelihood of no change in rates in July stands at 97.4%. The Fed's cautious approach is driven by concerns about tariffs and inflation, with economists suggesting that the worst-case scenarios around inflation are becoming less likely.

References:
[1] https://www.investopedia.com/inflation-crushes-hopes-for-federal-reserve-to-cut-interest-rates-this-summer-11772268
[2] https://finance.yahoo.com/news/trump-says-federal-lower-interest-145338806.html
[3] https://finance.yahoo.com/calendar/economic?day=2025-07-17