Softer US Inflation Data Cools Bets on a Fed Rate Hike

A string of cooler-than-expected US inflation readings has damped speculation that the Federal Reserve's next move will be a rate increase. June consumer prices fell more sharply than anticipated, dropping about 0.4% on the month, and the following day's producer price index also came in below forecasts, pointing to easing cost pressures for businesses. Retail sales, meanwhile, edged up modestly in June, suggesting a resilient but not overheating consumer. Together the data prompted investors to reprice the path of policy, with the market-implied probability of a further hike falling to around 40%, while Treasury yields declined and the yield curve flattened at the short end. Fed officials struck a hawkish-but-patient tone, reiterating that inflation risks remain tilted to the upside because of tariffs, elevated energy costs tied to the Middle East conflict, and strong AI-driven demand for electricity and technology, but signalling no rush to act. The Federal Open Market Committee, which has held its benchmark rate at 3.50%-3.75% all year, meets at the end of July, and the softer figures give it room to keep rates on hold while it assesses whether the disinflation trend is durable.