Analyst: CPI data leans dovish, dashing expectations of a July rate hike by the Fed.

Analyst Justin McQueen said that after Federal Reserve Governor Christopher Waller delivered a hawkish speech on Monday, hinting he would support a near-term interest rate hike if core CPI came in strong, U.S. June inflation data released on Tuesday sent a clear dovish signal. The data showed core CPI was flat month-over-month, below market expectations of a 0.2% rise; the year-over-year increase stood at 2.6%, also missing forecasts. This outcome has significantly reduced the urgency for the Federal Reserve to raise rates further in the short term. In terms of market pricing, expectations for a July rate hike have cooled notably. The implied probability of a July rate hike in interest rate markets has fallen to around 15%, almost back to the level before Waller’s speech, meaning investors have nearly ruled out a July rate hike. While this does not mean the possibility of further policy tightening within the year has completely vanished, the threshold for the Fed to raise rates again has risen significantly. Analysts believe that unless the Middle East situation escalates, disrupting energy supplies again and driving a sharp rise in oil prices to reignite inflationary pressures, the Fed is more likely to keep rates steady for the coming period, with the likelihood of a near-term rate hike having dropped sharply.