CME FedWatch shows a 66.9% probability of the Fed keeping interest rates unchanged in September

Summary

Recent CME FedWatch data indicates a 66.9% probability that the Fed will maintain interest rates in September, a significant shift from late July when a 25bps hike was the consensus Zhitong. This reversal is fueled by July’s macro weakness, including CPI falling to 3.4% and a 0.6% drop in retail sales Zhitong. Consequently, the S&P 500 has reached record highs while the Dollar Index hit a three-month low Zhitong.

Impact Analysis

So, the market has completely flipped the script on the Fed. We’re looking at a 66.9% chance of a September pause, a massive swing from late July when a hike was the base case Zhitong. This isn’t just noise; it’s a direct reaction to that July macro cooling—CPI dropping to 3.4% and retail sales unexpectedly sliding Zhitong. Basically, the ‘higher for longer’ narrative is hitting a wall of reality.

The S&P 500 hitting record highs and the Dollar Index dropping to three-month lows tells you exactly where the ‘soft landing’ crowd is moving Zhitong. But here’s the catch: the market might be front-running the Fed too hard. We have the July minutes coming out on August 20 Zhitong. If the Fed sounds even slightly more hawkish than this pricing suggests, the reversal in the USD and equities will be violent. Bottom line: stay long EUR/USD toward 1.16 for now Zhitong, but tighten stops ahead of the minutes. The consensus is leaning heavily into a pivot that the Fed hasn’t explicitly confirmed yet.