U.S. inflation data released on Tuesday and Wednesday showed a sharper-than-expected cooling, dramatically slashing market expectations for a Federal Reserve rate hike at the July 29 meeting. The June Consumer Price Index (CPI) fell 0.4%—the biggest monthly decline since April 2020—while annual CPI slowed to 3.5%, below the 3.8% forecast. The Producer Price Index (PPI) followed a day later, dropping 0.3% in June, its largest monthly decline since April 2025, compared to expectations for an unchanged reading.
The immediate reaction in bond markets was a swift decline in U.S. Treasury yields. The 10-year yield fell roughly 6 basis points to 4.553%, and the 2-year yield—most sensitive to Fed policy expectations—dropped 8 basis points. Traders sharply reduced bets on a near-term rate increase: CME FedWatch showed the probability of a 25-basis-point hike at the July meeting collapsing to 17% from 42% the previous day, while market-based estimates cited by The Kobeissi Letter saw odds as low as 8%. After the PPI release, prediction-market odds of a July hike fell further to about 4%.
Fed Chairman Kevin Warsh reinforced the cautious mood in his testimony, stating the central bank has “no tolerance for persistently elevated inflation” but also noting that the current Fed funds rate of 3.75% is “perfectly balanced” for the risks to the economy and inflation. Chief economist Chris Rupkey declared, “You can take those Fed rate hikes off the table for now.” Still, markets priced a roughly 60% chance of at least one increase by September, indicating that while immediate pressure has eased, lingering inflation risks from energy prices—oil was already up 20% in July—keep further policy moves in play.
Equity futures rallied on the back of the data, with Nasdaq 100 futures gaining 0.6% to 0.7% led by technology shares. The softer inflation readings brought relief to risk assets, as lower borrowing costs and a less aggressive Fed are typically supportive for growth-oriented investments, including cryptocurrencies. However, analysts caution that a single month of weak data may not sway the Fed if energy prices rebound or core services inflation remains sticky, with core PPI still rising 0.2% month-over-month.
