June’s consumer price index (CPI) inflation report showed a monthly rise of 0.3% and a yearly jump of 2.7%. It was the highest yearly increase since February and well above the Fed’s target of 2.0%. Year-over-year inflation increased by 2.4% in May and 2.3% in April.
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The Fed’s dual mandate is to tame inflation and maximize employment. If inflation is still an issue, the Fed will either have to raise or maintain interest rates. Higher-for-longer rates tend to pressure stocks because lower rates usually boost economic growth by reducing borrowing costs for both corporations and consumers.
July Rate Cut Odds Fall to 2.6%
The Fed will hold its next interest rate decision meeting on July 29-30. However, investors hoping for a rate cut will need to wait until the next meeting in September. The odds of a 25-bps rate cut in July are now at a minuscule 2.6% compared to 6.2% yesterday and 23.0% a month ago.
For the September 16-17 meeting, there is a 61.9% chance of a 25-bps cut, up from 58.9% yesterday and 56.8% a month ago. A 50-bps cut is also on the table, although just barely with a 1.6% chance.
Track the federal funds rate and other key economic metrics with TipRanks’ Economic Indicators Dashboard.
