July CPI Pushes Back Fed Rate Cut Prospects

Market expectations for a Federal Reserve rate cut in September have shifted significantly following the release of July’s inflation data. The hotter-than-expected Consumer Price Index (CPI) has introduced uncertainty about the timing of potential monetary easing, according to Wall Street Journal chief economics correspondent Nick Timiraos. While a rate cut is not entirely ruled out, the data has pushed back the threshold for action, with future reports—particularly the Producer Price Index (PPI) and labor market data—now playing a crucial role in shaping the Fed’s decision [1].

The initial market reaction to the July CPI numbers was marked by volatility, especially in the cryptocurrency sector. Bitcoin and Ethereum experienced brief price fluctuations before stabilizing. Historical patterns suggest that markets tend to revert to stability once additional data clarifies the Fed’s policy direction [2]. Despite short-term turbulence, Bitcoin’s 24-hour price rose by 1.03% as of August 12, 2025, while its 90-day appreciation reached 15.63%. The resilience in crypto markets underscores the broader investor expectation that the Fed will eventually pivot toward rate cuts to support economic growth [2].

Investors had previously priced in a near-certain 25-basis-point rate cut in September, with futures markets showing a 90% to 94.1% probability of such a move. This optimism was fueled by a weaker-than-expected August jobs report and the appointment of Stephen Miran as a temporary Fed governor. Miran’s dovish stance has been interpreted as a signal that the administration is prioritizing economic support over strict inflation control [3].

However, the July CPI results have dampened some of this confidence. If the data exceeds a 0.3% rise, as seen in core measures, it could delay action and increase market volatility. ING economists note that while a small inflation uptick may still be acceptable, a more pronounced rise would force the Fed to reassess its strategy. The upcoming PPI and labor reports will be critical in determining whether the Fed can proceed with a cut or if further caution is warranted [3].

Bond markets have already responded to the shifting outlook. The 10-year Treasury yield fell to 4.27%, reflecting growing speculation about a Fed easing cycle. Money markets now project more than two rate cuts by year-end, with an 80% probability of a move in September. This expectation has been reinforced by the broader perception that the administration favors accommodative monetary policy, as evidenced by Miran’s appointment and his previous advocacy for a weaker dollar [3].

Global equity markets have mirrored this optimism, with the S&P 500 hitting record highs and other major indices also posting gains. Analysts from JPMorgan and Deutsche Bank suggest that a moderate inflation reading—particularly one within the 0.3% range—could confirm market expectations and pave the way for a rate cut. However, any deviation from this could trigger renewed uncertainty [3].

As the global financial community awaits the official inflation report, the stage is set for potential market adjustments. The July CPI has altered the Fed’s calculus, and while a September rate cut remains a possibility, its timing and execution are now subject to further economic data and evolving market conditions.

Sources:

[1] title: Fed Rate Cut Prospects Altered After Inflation Data (url: https://coinmarketcap.com/community/articles/689bba75f5c8bb5c385fcbea/)