Fed Rate Hike Odds Slide After Softer Inflation, Stronger GDP
Fed hike odds fell to 41.5% as August PCE inflation hit 3.4% and Q2 GDP was revised up to 2.2%. Williams sees "no urgency" for another increase.
- Author
- By Grace Kim
- Filed
- Length
- 2 min read
Key takeaways
- PCE price index rose 3.4% year over year in August, below Dow Jones' 3.7% estimate
- Q2 GDP was revised up from 1.5% to 2.2% by the Commerce Department
- Odds of a second Fed rate hike in 2026 fell to 41.5%; Williams cited "no urgency" for an increase
The probability of a second interest rate hike before the end of 2026 dropped to 41.5% after new inflation and growth data released this week, according to Morning Brew.
The personal consumption expenditures price index—the Federal Reserve's preferred inflation gauge—rose 0.3% in August and 3.4% year over year, the data showed. That top-line figure remains well above the Fed's 2% target. But it came in below the 3.7% estimate from Dow Jones.
The core rate, which excludes volatile food and energy prices, registered 3%, also up 0.3% for the month and below expectations.
The cooler inflation reading was not the only data point shifting the picture. Revised figures from the Commerce Department showed gross domestic product rose 2.2% in the second quarter, up sharply from the original estimate of 1.5%.
The US Bureau of Economic Analysis (BEA) also revised another metric the Fed uses to gauge underlying economic trends upward for Q2.
New York Fed President John Williams said there was "no urgency" for another rate increase, according to Morning Brew.
"Yesterday's softer-than-expected inflation reading for August and a massive upward revision to Q2 gross domestic product were among the indicators that the economy is humming along—and that a second interest rate hike before 2026 ends may not be as sure of a thing anymore," Morning Brew reported.
The shift matters for the construction and architecture sectors. A pause in rate hikes would relieve pressure on borrowing costs for developers financing new projects, after a period when tighter monetary policy slowed deal flow and project launches.
For now, markets face a Fed that sees an economy growing faster than previously measured—2.2% versus 1.5%—while inflation cools more than forecast. If that combination holds through the fall, the case for additional tightening before year-end weakens further.
Source: FloorDaily
