Fed Rate Path Solidifies: Market Sees 89% Chance of July Hold as Inflation Bites
The market overwhelmingly expects the Fed to hold rates steady at the July meeting, with a 9% chance of a hike. Persistent inflation data is supporting this hawkish view, making KXFEDDECISION contracts a key area of interest.
Key takeaways
- 01
The market overwhelmingly expects the Fed to hold rates steady at the July meeting, with a 9% chance of a hike.
- 02
Persistent inflation data is supporting this hawkish view, making KXFEDDECISION contracts a key area of interest.
- 03
The Federal Reserve's July meeting is the central focus for traders.
Full analysis
The Federal Reserve's July meeting is the central focus for traders. The market is firmly pricing in a 0bps hike (89¢ on KXFEDDECISION-26JUL-), assigning a 9% chance to a 25bps hike and a negligible probability of a cut. This hawkish stance comes despite a slightly weaker dollar (UUP -0.53%) and rising gold (GLD +2.14%). The KXCPIYOY-26JUN-T3.7 contract, asking if CPI inflation is above 3.7%, is trading at 68¢, indicating persistent inflation concerns. The most liquid contracts are the KXFEDDECISION and KXAAAGASW series. KXFEDDECISION offers a clear view on the rate path, while the gas price markets (KXAAAGASW) show a high probability (95¢) of prices staying above $3.78, reflecting inflation stickiness. Traders should watch the KXCPIYOY and KXFEDDECISION contracts for any shifts ahead of the meeting.
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