Traders Trim Fed Rate-Hike Bets to One Before Mid-2027

Traders now expect the Federal Reserve to raise rates at most once before mid-2027, retreating from earlier bets on a more aggressive tightening path.

Traders have cut their wagers on the Federal Reserve raising rates more than once before mid-2027, as softer US inflation data lowered the odds of a September hike to 34.8 percent.

"Fed rate hike speculation has recently suffered a setback on the back of recent US data releases," said Jane Foley, senior FX strategist at Rabobank. "This opens the prospect of further slippage for the greenback."

The repricing followed a flat reading in US wholesale prices for July, against expectations for 0.2 percent growth, after a revised 0.1 percent decline in June. Core producer prices, excluding food and energy, rose 0.2 percent, below the 0.3 percent consensus. Headline PPI climbed 4.7 percent from a year earlier, while core PPI advanced 4.2 percent.

The shift in expectations ripples across assets. A less aggressive Fed path would ease borrowing costs and support rate-sensitive equities, while weighing on the dollar, which slipped against the Indonesian rupiah to trade near 17,880. Markets now turn to US July retail sales due later Friday for the next signal on the policy trajectory.

The CME FedWatch Tool showed the probability of a US rate hike at the September meeting at 34.8 percent, down from 40 percent immediately after the PPI release. The retreat reflects a broader reassessment of how much tightening the Fed can deliver without stalling growth, a question that has dominated the rate debate through the summer.

Foley cautioned that the softer-dollar narrative remains vulnerable to renewed energy-market stress. "The view could still be thrown off course if oil prices spike higher again," she said, pointing to the risk that a jump in crude would rekindle inflation and force the Fed back toward a more hawkish stance.

A Narrower Path for the Fed

The market's repositioning implies a less hawkish monetary policy outlook than traders priced just weeks ago. Lower projected rate increases would ease borrowing costs across the economy, reducing downward pressure on equities and supporting growth-sensitive sectors. The dollar, meanwhile, faces further slippage if the data continues to cool, a dynamic already visible in emerging-market currencies such as the rupiah.

The transmission runs through the rate-sensitive corners of the market. A Fed that raises rates only once before mid-2027, rather than twice or more, would keep the cost of capital lower for longer, a tailwind for equities and a headwind for the greenback. For emerging markets, a softer dollar eases the burden of dollar-denominated debt and supports local currencies, a factor that has helped the rupiah hold ground ahead of Indonesia's budget address.

What Comes Next

The next test comes with US retail sales due later Friday, followed by the Fed's September meeting. If inflation continues to moderate, traders may pare rate-hike bets further, extending the recent repricing. If energy prices spike or retail demand surprises to the upside, the 34.8 percent probability of a September hike could climb again, reviving the case for a more aggressive Fed.

The stakes are measurable. A single additional hike before mid-2027, versus two or more, changes the trajectory of borrowing costs for households and companies, and shifts the relative appeal of the dollar against currencies across Asia and beyond. For now, the data has moved the market's baseline toward a gentler path, but the September decision remains the fulcrum on which those expectations turn.

This article is for informational purposes only and does not constitute investment advice.