As of mid-August 2026, softer US economic data has reduced the probability of a Federal Reserve rate hike at the September meeting. July retail sales fell 0.6% month-on-month, the weakest reading in more than a year, while consumer sentiment plunged amid ongoing fallout from the Iran war.
Combined with the earlier July payrolls decline and broadly in-line inflation, the data points to cooling economic momentum. Traders now price roughly a one-in-four chance of a hike, down from even odds last week, according to Bloomberg. Expectations have shifted toward the Fed leaving rates unchanged at 3.5%–3.75%.
Markets had earlier embraced a “bad news is good news” dynamic that supported equities, but the latest figures raise questions about underlying economic health. Attention now turns to upcoming retail earnings for further clues on consumer strength.
Trade analysis
This short-dated contract has swung further away from hike risk toward a hold or potential cut after a series of soft data. The edge is weighing labor and demand weakness against still-elevated inflation.
Bullish (CUT) signals:
- Clearer signs of cooling inflation allowing the Fed to ease
- Dovish signals from Warsh highlighting downside growth risks
Bullish (HOLD) signals:
- Inflation remaining sticky enough to prevent an immediate cut
- Warsh and the committee emphasizing the need for more confirmation
Bearish (HIKE) signals:
- Upside inflation surprises that revive price-stability fears
- Hawkish commentary stressing on inflation
Base case has moved toward a September hold, with cut odds rising and hike probability fading. Traders should monitor retail earnings and the next inflation and jobs prints closely.