Fed September rate hike odds drop to 28.6% following weak economic data

Summary

Following a series of weak economic indicators, including a surprise 0.6% drop in July retail sales and cooling CPI data (3.4%), the probability of a Fed rate hike in September has plummeted to 28.6% MSN. Market consensus has shifted heavily toward a pause (67.5%), as consumer confidence and labor market data also show signs of softening MSN.

Impact Analysis

So, the market is finally blinking. We’re seeing the September hike odds collapse to 28.6% because the US consumer—long the hero of this cycle—just tripped. That -0.6% retail print was the real catalyst, coming in significantly worse than the -0.1% expected MSN. It’s no longer just about inflation cooling to 3.4% ; it’s that the growth engine is visibly sputtering.

Remember when the hawks were shouting about ‘credibility’ ? That narrative is dying fast. We are transitioning from ‘bad news is good news’ (because it stops the Fed) to ‘bad news is just bad news’ for earnings. If consumer confidence and retail are both sliding , the Q4 earnings estimates across discretionary sectors look way too optimistic.

Bottom line: The Fed is likely done, but for the wrong reasons. I’d stay long duration and gold, which is already sniffing this out . The dollar is the clear loser here as the ‘higher for longer’ trade gets dismantled by a weakening consumer.