July CPI Sets Up Next Hurdle for Fed Rate Hike This Year, Smart Money Predicts No Rate Hike This Year

According to PolyBeats monitoring, in the prediction market Polymarket, a savvy money has put in $9.6k on "Will the Fed raise interest rates in 2026?" with an average buy probability of 43.1%. Currently, the probability of "Yes" is 58.5%.

DancewithRisk has invested $9.6k, and the most relevant category in this market is the Fed, with a net profit of $6.8k. Out of a total of 21 settled trades in this category, the win rate is 16/21 (76%), with 2 trades where the buy price was below $0.8 and the sell price was above $0.95. Within a similar cost range ($0.451-$0.5), the median historical investment amount is $14.2k.

Since the beginning of 2026, the Fed has maintained the federal funds rate target range at 3.50%-3.75%. In the meeting on July 29th, the decision to maintain the rate was made with a 9-3 vote, with support for a 25 basis point rate hike from Beth Hammack, Neel Kashkari, and Lorie Logan. There are 3 regular meetings remaining this year on September 15-16, October 27-28, and December 8-9.

In July, the US nonfarm payrolls decreased by 23,000, the labor force participation rate fell to 61.4%, and the average monthly job gains over the past 3 months dropped to around 20,000. The unemployment rate is 4.1%, with the Fed's long-term unemployment rate median at 4.2%. The employment data has reduced the urgency for a near-term rate hike. A New York Fed survey shows consumer 1-year inflation expectations have fallen to 3.6%, with 3-year and 5-year expectations remaining at 3.3% and 3.0% respectively.

The US Labor Department will release the July CPI on August 12th at 8:30 AM ET. A Reuters survey expects CPI to rise by 3.4% year-on-year, and core CPI to rise by 2.5% year-on-year, with market expectations for a 0.1% and 0.2% month-on-month increase respectively. Brent crude oil rose today to $88.00 per barrel, and the recent increase in energy prices continues to impact the inflation outlook. Higher than expected CPI could fuel discussions of a rate hike in September. Data close to expectations will provide a basis for the Fed to continue maintaining rates.
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