US PPI Jumps to 3.3% in July, Cooling Fed Rate-Cut Optimism

The U.S. Producer Price Index (PPI) for July posted a sharp upside surprise, with producer prices rising 3.3% year-on-year, well above June’s 2.3% and the consensus forecast of 2.1%.

The stronger-than-expected reading came just two days after July’s CPI data printed broadly in line with expectations, forcing markets to reassess the outlook for Federal Reserve rate cuts.

July U.S. Producer Price Index Readings

• Headline PPI y/y: 3.3% (prior 2.3%, forecast 2.1%)
• Headline PPI m/m: 0.9% (prior 0.0%)
• Core PPI y/y: 3.7% (prior 2.6%, forecast 2.7%)
• Core PPI m/m: 0.9% (prior 0.0%)

The surge was largely attributed to lingering tariff impacts from the Trump administration, which continue to elevate input costs for businesses—an effect analysts warn could persist in the coming months.

Market Reaction & Policy Implications

The hotter PPI print weighed on market sentiment. S&P 500 futures slipped around 0.5–0.6%, while the 10-year Treasury yield eased to about 4.2% as traders recalibrated expectations for Fed policy.

While a September rate cut remains in play, the latest data has cast doubt on the extent of easing that might follow. The combination of softer CPI and firmer PPI highlights the mixed inflation picture confronting policymakers, potentially complicating the Fed’s path in the months ahead.

Markets have now scaled back earlier aggressive bets, shifting from pricing in three rate cuts in 2025 to only two, according to the latest CME FedWatch Tools data after the PPI data released.

Fed Meeting Probabilities | Source: CME Group

The US Dollar rebounded as markets scaled back rate-cut bets, while US equities initially pulled back following the PPI release. However, stocks quickly recovered and extended gains, suggesting investor optimism toward the US equity market remains intact despite a pushback in Fed easing expectations.

What’s Next?

• Fed-preferred inflation gauge—PCE Price Index Follow-Up: Upcoming consumer data—Personal consumption expenditures (PCE) index—will further clarify whether wholesale inflation is filtering down to consumers.
• Policy Implications: If high inflation persists, it could push the Federal Reserve to slow down or moderate the pace of rate cuts, emphasizing the need to bring inflation sustainably under control.
• FX & Bond Flows: Dollar strength could reassert as markets digest elevated inflation risk, while bond yields may hold elevated levels amid reduced rate-cut expectations.

Outlook for US Dollar

While the recent scaling back of Fed rate-cut bets could lend renewed strength to the greenback, confirmation will depend on upcoming price action. The US Dollar Index (USDX) remains locked in a tight consolidation range, reflecting steady sentiment at current levels.

USDX, Daily Chart Analysis | Source: Ultima MT5

The range-bound structure suggests that without a major new catalyst, the dollar is likely to continue trading sideways in the near term, with breakout direction hinging on shifts in macroeconomic data or Fed further forward guidance.

Disclaimer  

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