Fed Rate Cut Expectations Deepen as CPI Data Looms
Markets are pricing in a high 82% probability of no rate hike in July, while the debate over the total number of 2026 cuts intensifies. The CPI report for June is the next major catalyst, with a 65% probability of inflation exceeding 3.7%.
Key takeaways
- 01
Markets are pricing in a high 82% probability of no rate hike in July, while the debate over the total number of 2026 cuts intensifies.
- 02
The CPI report for June is the next major catalyst, with a 65% probability of inflation exceeding 3.7%.
- 03
The Federal Reserve's July meeting is a key event, but the market is already looking past it, focusing on the cumulative number of cuts by year-end.
Full analysis
The Federal Reserve's July meeting is a key event, but the market is already looking past it, focusing on the cumulative number of cuts by year-end. The KXFEDDECISION-26JUL- market shows an 82¢ probability of no move, confirming expectations of a pause. The more interesting action is in the KXRATECUTCOUNT-26DEC markets, where the 2-times cut scenario has 5¢, but the 13-times cut scenario sits at 0¢, reflecting a wide range of outcomes. The KXCPIYOY-26JUN-T3.7 market, pricing a 65% chance of CPI above 3.7%, is the most direct data-dependent contract. A hotter CPI print would likely reduce rate cut expectations, while a cooler print could accelerate them. Traders should monitor these contracts as they are highly sensitive to economic data releases. The SPY traditional market, down 0.44%, reflects this cautious sentiment. The most liquid contracts are the KXFEDDECISION-26JUL- (volume 158k) and KXCPIYOY-26JUN-T3.7 (volume 13k).
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