NYSEThe Federal Reserve is likely to keep interest rates unchanged in September, market odds show.Weak retail sales and negative job growth has eased pressure on the Fed to hike rates.Investors are reacting to cooling inflation, weak job growth, and contracting retail sales.As recently as a few weeks ago, investors had been pricing in two Federal Reserve rate hikes before the end of 2026, and a hike in September seemed like all but a sure thing.But a string of new developments has changed Wall Street's calculations.Market odds now say there's a 69% chance the Fed will stay put in September. Since July 23, the 2-year Treasury yield, which tends to resemble the Fed's policy rate, has also fallen by about 20 basis points. And by its December meeting, markets now expect the central bank to deliver just one hike.Here's a rundown of what's prompted the dovish shift:1. Weak retail salesRetail sales unexpectedly contracted by 0.6% in July, according to Commerce Department data released on Friday. The data suggests consumer demand could be softening, which puts lets upward pressure on inflation, allowing the Fed to be less hawkish.2. Consumer inflation came in coolJuly's inflation print came in at 3.4% year-over-year, in line with economists' expectations. While that's still well above the Fed's 2% target, investors were able to breathe a sigh of relief as inflation continued on its downward trend from 3.5% in June and 4.2% in May.The Fed uses interest rates as a tool to fight inflation. When consumer prices rise, the central bank raises interest rates to slow borrowing and demand.3. So did producer inflationAnother inflation gauge, the Producer Price Index, which measures wholesale costs for businesses, hit 4.7% year-over-year.Like CPI, PPI is also on a downward trend. It had hit 5.5% in June and 5.9% in May.4. Negative job growthFinally, non-farm payroll growth went negative in July, as investors learned on August 7 that the US economy lost 23,000 jobs last month.A cool job market means less inflationary pressure from wage growth and overall demand.Read the original article on Business Insider
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