Odds of a 25-basis-point Federal Reserve rate increase following the September 2026 meeting fell to 25% on Polymarket, down from approximately 60% earlier in the month, after U.S. inflation data came in softer than anticipated.
The July Consumer Price Index rose 0.1% month-over-month, with headline inflation ticking down to 3.4% year-over-year from 3.5% in June. Core CPI increased 0.2% for the month and eased to 2.5% annually, down from 2.6%. The Producer Price Index was unchanged for the period, while core PPI rose just 0.1%, below market expectations.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said the data suggested Fed Chair Kevin Warsh was "unlikely to adopt a stridently hawkish stance." Warsh has drawn comparisons to former Fed Chair Paul Volcker for his approach, though not all analysts agreed with his trajectory. Peter Schiff dismissed the July CPI print as "misleading" and cautioned on X that investors should "pay attention to what the Fed does" rather than its rhetoric.
On the growth side, the Weekly Economic Index indicated real GDP expansion of roughly 3%, and the Atlanta Fed's GDPNow model pointed to a strong third-quarter reading, adding to the case that the economy can absorb a pause in tightening.
The Federal Reserve's balance sheet stood at $6.76 trillion as of Aug. 12, up $11.38 billion week-over-week and $116.3 billion year-over-year, still well below the roughly $9 trillion peak reached during the pandemic. Quantitative tightening officially ended in December 2025 after beginning in June 2022.
Yardeni Research noted that a 10-year Treasury yield in the 4.00% to 5.00% range is "broadly consistent with these fundamentals," a level that would align with a lower-for-longer policy posture. The broader U.S. federal debt stands at approximately 123% of GDP, compared with 31% in 1980, a structural backdrop that many economists say constrains the Fed's ability to sustain aggressive rate increases.
Markets priced the shift across major ETFs, with the iShares 20+ Year Treasury Bond ETF (TLT), the SPDR S&P 500 ETF Trust (SPY), and the Invesco QQQ Trust (QQQ) all moving in response to recalibrated rate expectations heading into the September meeting.
