One Week of Soft Data Cut September Hike Odds From 50% to 31%

The September rate-hike trade died in a single week. Three data prints — the July jobs report, consumer prices, and producer prices — all came in soft in quick succession, and the market's implied odds of a Federal Reserve hike next month collapsed from roughly 50% to 31%.

It is a measure of how strange this cycle is that the relief trade runs through hike odds rather than cut odds. Under Chair Kevin Warsh, who took the helm in May pledging a monetary policy regime change, markets have spent the summer pricing the risk that the Fed's next move is up. A week of cooling data was enough to unwind much of that fear.

The sequence

The July employment report opened the week on the soft side, with risk assets rallying on the release. The consumer price index followed, undershooting forecasts and knocking the dollar back. Producer prices sealed it. None of the three individually would have changed the picture; together they read like an economy losing its inflationary edge.

Economists caution that summer prints carry seasonal quirks — the World Gold Council even flagged World Cup-related distortions in the activity data — but positioning does not wait for revisions.

Where the money went

The consequences mapped cleanly: Treasury yields eased, the dollar weakened, and the assets that suffer under a tightening Fed inhaled. Gold, already firming, accelerated into what has become its best month since January. Equities steadied. And crypto — the most rate-sensitive risk asset of all when it wants to be — put in its lows for the month within days of the CPI print.

The caveat is that one week of data proves nothing to a data-dependent Fed that has deliberately stopped offering forward guidance. The market has moved from fearing a hike to doubting one; the distance between doubting and knowing is what Jackson Hole is for.