Consumer prices fell by the largest monthly amount since April 2020 in mid-July, according to data released by the Bureau of Labor Statistics. The decline sent the probability of a Federal Reserve rate increase at its July 29 meeting to single digits, traders say.
Odds of a rate hike at the next Fed meeting fell sharply following the inflation print. CME FedWatch Tool readings show rate hike probability in the range of 25 to 46 percent, according to market data trackers.
The CPI data marked a shift in inflation. The monthly decline was substantial enough to alter market expectations for the Fed's near-term tightening cycle, which had been priced in by investors over recent weeks.
Cryptocurrency markets responded to the softer inflation backdrop. Major exchange holdings of Bitcoin and Ethereum increased as traders positioned for an extended period of monetary accommodation from the Fed, according to on-chain data.
The timing of the inflation data comes ahead of the central bank's July 29 policy decision. Fed officials will weigh the latest CPI figures alongside other economic indicators when deliberating whether to adjust the current federal funds rate, which has remained in place since the 2023 tightening cycle began.
Market participants are monitoring CME FedWatch and competing probability trackers for real-time shifts in rate expectations as the meeting approaches.
