--- title: "The Market's \"Core Logic\" This Week: Will the Fed Skip a Rate Hike in September?" type: "News" locale: "en" url: "https://longbridge.com/en/news/295986786.md" description: "US inflation data, including CPI and PPI, along with retail sales figures for July, softened across the board. Coupled with a cooling labor market, the market's probability of a Fed rate hike in September plummeted from 75% to 25%, driving global stocks higher for three consecutive weeks. However, oil prices remain elevated, and the US Treasury yield curve is steepening, with the long end of the bond market continuing to price in inflation and the U.S. Fiscal Deficit. The Jackson Hole meeting in two weeks will serve as a key bellwether" datetime: "2026-08-15T01:21:55.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/295986786.md) - [en](https://longbridge.com/en/news/295986786.md) - [zh-HK](https://longbridge.com/zh-HK/news/295986786.md) --- # The Market's "Core Logic" This Week: Will the Fed Skip a Rate Hike in September? US Inflation Data unexpectedly cooled, while employment and consumption softened. This week, market bets on a Federal Reserve rate hike in September receded sharply. However, abnormal signals from the long end of the bond market, surging oil prices, and the persistence of hawkish officials are challenging this "pause narrative." The probability of a September rate hike dropped precipitously from 75% in late July to around 25%, driving global stocks higher for a third consecutive week, with major US equity indices remaining near historical highs. Strong earnings from AI infrastructure-related companies continue to provide additional support for tech stocks, allowing equity markets to temporarily ignore the impact of oil prices and warnings from the long end of the bond market. However, the Iran/Strait of Hormuz crisis pushed Brent crude up nearly 6% for the week, approaching $90 per barrel; the yield on the US 30-year Treasury auction touched its highest level in 25 years. **While equities cheer the "Fed pivot," the long end of the bond market is pricing in inflation and the U.S. Fiscal Deficit—two parallel logics are at play, and determining which is correct may be the most important trading thesis for the second half of the year.** ## Inflation Cools, September Rate Hike Expectations Collapse The biggest macro driver this week came from a series of soft US data points: > - **July CPI** rose only about 0.1% month-over-month, and about 3.4% year-over-year, with core inflation pressures continuing to ease moderately; > - **July PPI** was flat month-over-month, below expectations; > - **July Retail Sales** fell 0.6% month-over-month, marking the largest single-month decline in over a year, significantly missing market expectations for a slight increase. Autos, oil prices, and several timing factors contributed to the drag. Combined with the previously released non-farm payroll data (a decrease of 23,000 jobs, which was also revised downward), this soft data combination completely dismantled market expectations for recent Fed rate hikes, erasing all the hawkish premium accumulated since Powell became Fed Chair. Evercore ISI economist Marco Casiraghi believes that the combination of CPI and PPI data supports holding rates steady in September, but the option of a hike has not been completely closed off, as "risks remain that could make the committee more inclined to raise rates." EY-Parthenon Chief Economist Gregory Daco expressed a clearer optimistic stance, believing that the peak in oil-driven inflation related to the conflict with Iran has "most likely passed," supporting the Fed's patience, and he expects the Fed to remain on hold throughout the year. Capital Economics' Chief North America Economist Stephen Brown estimates that July core PCE rose only 0.16% month-over-month. If true, "a September rate hike—as we previously predicted—now seems unlikely." **But hawkish voices have not fallen silent.** Diane Swonk, Chief Economist at KPMG, warned that core PCE year-over-year may still remain sticky around 3.3%. Diane Swonk stated: > Mild CPI does not rule out a September rate hike; this figure could not only reinforce hawkish resolve but also garner more votes in favor of a hike within the Fed leadership. Cleveland Fed President Beth Hammack reiterated after the CPI report release that the Fed needs to raise rates immediately to suppress inflation. Beth Hammack had voted in favor of a rate hike at the previous FOMC meeting. ## The Long End of the Bond Market Sends a Starkly Different Signal The most important, yet most overlooked, signal in the market this week came from the long end of US Treasuries. Despite soft inflation data and a sharp decline in Fed rate hike expectations, the yield on the 30-year Treasury auction still hit a 25-year high this week, while the 10-Year Treasury Yield also remained in historically high territory. The 30-year Treasury yield rose more than 6 basis points for the week, touching its highest point in nearly 19 years, while the 2-year yield fell to about a one-month low. The 2-year/30-year spread widened significantly, and the yield curve steepened substantially. **This divergence reveals two distinct pricing logics: the short end is trading on the idea that "the Fed is about to stop hiking rates," while the long end is pricing in factors such as massive fiscal deficits, persistent inflation uncertainty, large-scale Treasury supply, and doubts about Fed credibility, with investors demanding higher duration risk compensation.** As analysts pointed out, the market may believe the Fed has finished hiking rates. But this is not equivalent to believing that inflation has been thoroughly suppressed. This divergence could evolve into one of the most decisive trading themes of the second half of this year. ## Jackson Hole Will Be the Key Litmus Test When Fed officials gather at Jackson Hole in two weeks, it will be Chair Powell's first public speech since taking office. The market will look for clear signals regarding the economic outlook and the path of monetary policy. **Historically, Fed Chairs have used this forum to lay the groundwork for September policy actions or to announce major framework adjustments.** Former Atlanta Fed President Dennis Lockhart stated bluntly in an interview with Yahoo Finance: > **This is a rather tense moment—the economic situation is full of uncertainty, the market reacted fiercely to the July press conference, there are divisions within the committee, and doubts surrounding Powell's initial performance have not dissipated.** Lockhart noted that there is a view that inflation will naturally fall back to the 2% target as tariff effects fade and the Hormuz issue is resolved, but "this is a gamble, and I think some officials are maintaining reasonable caution or even skepticism about using this as a basis for decision-making." **In his view, one or two months of soft inflation data are not enough to change the Fed's basic narrative. Inflation has been above target for more than five years, the labor market remains close to full employment, and it is not yet conclusive whether the job market has truly softened.** The PCE data on August 26 will be released just before the Jackson Hole meeting, while August CPI, which tends to be more volatile, will only be available a few days before the September meeting. This means that whether or not there is a rate hike in September will ultimately depend purely on data, and any unexpected number could reverse current market pricing once again. ### Related Stocks - [SCO.US](https://longbridge.com/en/quote/SCO.US.md) - [USO.US](https://longbridge.com/en/quote/USO.US.md) - [BNO.US](https://longbridge.com/en/quote/BNO.US.md) - [UCO.US](https://longbridge.com/en/quote/UCO.US.md) - [EVR.US](https://longbridge.com/en/quote/EVR.US.md) ## Related News & Research - [Oil edges lower amid mixed signals](https://longbridge.com/en/news/295864356.md) - [Oil eases as weaker demand outlook counters Mideast supply concerns](https://longbridge.com/en/news/295744721.md) - [4-Oil set for weekly gains after US threatens indefinite blockade of Iran](https://longbridge.com/en/news/295923118.md) - [Oil rises amid supply-disruption concerns](https://longbridge.com/en/news/295158530.md) - [RUBBER-Japan futures fall as oil slides, Malaysian output rises](https://longbridge.com/en/news/295868266.md)