Expectations for a rate hike in the U.S. in September continue to cool! Retail sales and consumer confidence are weakening, and the market is betting that the probability of maintaining interest rates unchanged has risen to 71%.

As the latest retail sales and consumer confidence data from the United States both weaken, market expectations for the Federal Reserve to continue raising interest rates in September are further cooling. A series of economic and inflation data released this week showed weak performance, prompting traders to significantly lower their bets on further tightening of monetary policy by the Federal Reserve. The CME FedWatch tool indicates that, as of Friday, the market expects a 28.6% probability of the Federal Reserve raising interest rates by 25 basis points at the meeting on September 16, adjusting the target range for the federal funds rate from the current 3.50%-3.75% to 3.75%-4.00%. In contrast, this probability was 33.9% a day earlier, 44.4% a week earlier, and still reached 50% a month ago. Currently, maintaining the interest rate at the same level has become a clearer benchmark expectation in the market. Federal funds rate futures show that the probability of the Federal Reserve keeping the rates at 3.50%-3.75% in September has risen to 71.4%. The further decline in interest rate hike expectations is mainly driven by two weak economic data points released on Friday. U.S. retail sales unexpectedly fell in July, while the preliminary consumer confidence index from the University of Michigan dropped to 51 in August, marking the first decline in three months. This indicates that against the backdrop of persistent price pressures and uncertainty regarding the economic outlook, U.S. consumer spending and confidence levels are cooling. At the same time, the inflation data released this week has also reduced the urgency for the Federal Reserve to raise interest rates further in the short term. The year-on-year increase in the U.S. Consumer Price Index (CPI) for July slowed, while the Producer Price Index (PPI) remained unchanged month-on-month, showing that some price pressures are easing. The series of soft data on employment, consumption, and inflation has led the market to further cut back on its previously aggressive rate hike expectations. The predictions in the market also reflect this change. Kalshi currently estimates a roughly 54% probability that the Federal Reserve will raise rates again before 2027, a significant decline from earlier this month. Polymarket traders believe that the probability of the Federal Reserve raising rates at least once in 2026 is only 51%, a sharp drop from nearly 80% at the end of July and early August. With Federal Reserve Chair Powell reducing forward guidance on future rate paths, the influence of economic data on market interest rate expectations has significantly increased. As it stands, recent data on consumption and inflation has lowered the possibility of a rate hike in September, and market expectations have clearly shifted towards the Federal Reserve remaining on hold.