Markets flip: odds of September Fed rate hike climb to 56.9%

CME FedWatch showed on August 5 that interest-rate traders were pricing a 56.9% probability of a Federal Reserve rate increase at the next policy meeting, a reversal from recent talk that the next move would be a cut. The shift followed the Federal Open Market Committee’s July 29 decision to hold the federal funds target range at 3.5% to 3.75% by a 9-3 vote. The Federal Reserve said Beth Hammack, Neel Kashkari and Lorie Logan dissented in favor of a 25-basis-point increase, an unusually large bloc of hawkish votes for a hold decision. ### Why did traders suddenly start pricing a hike again? The Federal Reserve’s July 29 statement gave investors fresh evidence that inflation concerns had not gone away. The statement said inflation “remains elevated” relative to the central bank’s 2% goal and cited supply shocks, including higher energy prices, while saying the committee “will deliver price stability.” The same statement showed three dissenters wanted an immediate quarter-point increase rather than no change. (cmegroup.com) CME Group says FedWatch probabilities are derived from 30-day federal funds futures prices, making them a market-based read on where traders think policy is headed. FedWatch’s own guidance says media should attribute those probabilities to “CME FedWatch.” ### Who were the three dissenters, and why does that matter? (federalreserve.gov) Beth M. Hammack, Neel Kashkari and Lorie K. Logan were named in the July 29 statement as voting against the hold decision because they preferred to raise the target range by 25 basis points at that meeting. The Fed did not leave the reasons to inference: it published the dissents directly in the statement alongside its description of still-elevated inflation. (cmegroup.com) The 9-3 vote matters because the FOMC has held the target range at 3.5% to 3.75% since the start of 2026, according to the Fed’s July Monetary Policy Report. A three-member dissent in favor of tightening signals that support for another increase exists inside the committee even after months of no change. ### Why were stocks rising if rate-hike odds were rising too? (federalreserve.gov) ADP reported that U.S. private employers added 98,000 jobs in June, and Chief Economist Nela Richardson said the hiring pace was showing “a slowdown in job creation.” That kind of softer labor-market reading can ease immediate pressure on Treasury yields and on expectations for near-term policy tightening, even if traders still see a risk of a later hike. (federalreserve.gov) The Energy Information Administration has also documented falling oil prices. Its July short-term outlook said Brent crude averaged $85 a barrel in June, down $22 from May, and daily Brent prices later fell below $70 on July 1. Lower oil prices can help relieve one of the inflation pressures the Fed cited in its July 29 statement. ### What is the market waiting for now? (adpemploymentreport.com) The Bureau of Labor Statistics has scheduled the July Employment Situation report for Friday, August 7. That release is the next major U.S. labor-market reading for investors trying to judge whether slower hiring is becoming broad enough to affect the Fed’s September decision. The Federal Reserve’s calendar says minutes from the July 28-29 meeting are released three weeks after the policy decision. (eia.gov) Those minutes will give investors a fuller account of the debate behind the 9-3 vote before the next FOMC meeting in September. (federalreserve.gov) (bls.gov)