Inflation data fails to convince markets of additional Fed rate hike

© Reuters.  Markets decrease odds of another rate hike this year after CPI data© Reuters. Markets decrease odds of another rate hike this year after CPI data – July inflation data that came out generally weaker than expected on Friday caused markets to decrease the odds that the Federal Reserve (Fed) will hike interest rates once again this year.

Month-on-month and inflation readings both rose less than expected, according to data released Friday by the U.S. Bureau of Labor Statistics.

Meanwhile, the annualized reading of consumer price inflation (CPI) rose just last month, below forecasts for a 1.8% increase although slightly higher the 1.6% advance seen in June.

The core reading, that excludes volatile food and energy costs, did manage to match expectations by holding steady at .

Market bets that the Fed will complete its outlook of hiking rates at least once more this year deteriorated after the release, with Fed fund futures decreasing the odds to just 40%, compared to the 44% chance seen ahead of the data.

In an immediate reaction to the release, the , hitting its lowest level since prior to last Friday’s nonfarm payrolls report. At 9:02AM ET (13:02GMT), the , which tracks the greenback against a basket of six major rivals, was down 0.29% at 93.03, pulling back off its intraday low of 92.92.

U.S. stock futures took the weaker-than-expected reading as good news turning from a flat to lower reading to registering small gains. At 9:04AM ET (13:04GMT), gained 23 points or 0.11%, the advanced 4 points, or 0.14%, while the traded up 7 points, or 0.13%.

ING economist James Swift commented after the report that a 10% fall in the dollar year-to-date should help inflation recover later this year.

“But it’ll be slow and for now markets will remain skeptical on Fed hikes,” he explained.

Despite market skepticism, PNC Financial chief economist Gus Faucher insisted that “the next rate hike would likely come at the end of 2017, allowing time for inflation to pick up.”

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