July CPI Sticks at 2.7% as Fed Rate Cut Odds Near 93%

The U.S. Consumer Price Index (CPI) inflation remained at 2.7% year-over-year for July 2025, matching the previous month’s figure and falling in line with economist forecasts [4]. The Labor Department’s data showed a 0.2% increase in monthly prices, down from 0.3% in June, with core CPI—excluding food and energy—rising to 3.1% from 2.9% in the prior month [2]. This slight uptick in core inflation adds to the complexity of the inflationary landscape as the Federal Reserve weighs its next policy move.

Markets are increasingly pricing in a Fed rate cut at the September 17 FOMC meeting, with a 93% probability of a 25-basis-point reduction according to CME FedWatch data. Traders and analysts have been forecasting at least one, if not more, rate cuts this year as inflation shows signs of stabilization but remains above the 2% target [5]. JPMorgan, Bank of America, and other major institutions had anticipated a 2.8% CPI print, but the actual 2.7% reading was seen as a positive development, reducing the urgency for aggressive tightening [4].

The Fed faces a delicate balancing act between supporting economic growth and managing inflation expectations. While the CPI data did not show a clear downward trend, the absence of a rise in the headline figure could justify a pause in the tightening cycle. However, the core CPI’s resilience to 3.1% suggests underlying inflationary pressures remain, which may delay more aggressive cuts. Analysts suggest that the Fed will continue to monitor upcoming data before making a final decision [3].

The U.S. dollar index (DXY) fell to 98.40 following the CPI release, and the 10-year Treasury yield dipped to 4.265%. These movements reflect growing expectations of monetary easing and a shift in investor sentiment toward risk assets [2]. In the cryptocurrency markets, Bitcoin rebounded above $119,200, while Ethereum surged nearly 3% to $4,401. The rally came as traders reacted to the Fed’s potential rate cut, though bearish technical patterns and seasonal factors remain key risks [9].

Market participants are now looking at the upcoming Personal Consumption Expenditures (PCE) data as the next critical event for Fed policy guidance. The PCE index, which the Fed closely watches, could determine whether the central bank moves forward with a rate cut in September. For now, the data suggests a high likelihood of easing, though the pace and magnitude of policy adjustments will depend on how core inflation evolves in the coming months [1].

[1] https://www.mpamag.com/us/mortgage-industry/market-updates/fed-faces-pressure-to-cut-rates-after-july-inflation-matches-predictions/545875

[2] https://www.investors.com/news/economy/core-cpi-inflation-july-trump-tariffs-effect-federal-reserve-sp-500/

[3] https://finance.yahoo.com/news/cpi-new-inflation-reading-creates-dilemma-for-fed-over-cutting-rates-in-september-135039847.html

[4] https://www.reuters.com/business/view-us-inflation-rises-july-line-with-expectations-2025-08-12/

[5] https://www.fxstreet.com/news/us-cpi-data-set-to-show-inflation-ticked-up-in-july-as-tariffs-push-prices-up-202508120300

[9] https://www.financialexpress.com/business/investing-abroad-us-cpi-data-for-july-released-is-there-a-surprise-for-the-markets-and-powell-3944476/