CME FedWatch Tool data as of July 7, 2026, shows a 74.3% probability that the Federal Reserve will keep rates unchanged at the July FOMC meeting, and a 25.7% chance of a cumulative 25 basis point rate hike. This distribution indicates the market has largely ruled out a July rate hike as the baseline scenario.
More notably, the September probability matrix reveals a 42.9% chance of holding rates steady, a 46.2% probability of a 25 basis point hike, and a 10.8% probability of a 50 basis point hike. This suggests the market views the September meeting as a pivotal turning point for the Fed’s rate trajectory in the second half of 2026—rate hike and hold probabilities are nearly balanced, reflecting peak divergence.
The CME FedWatch Tool calculates market-implied probabilities for FOMC rate decisions based on 30-day federal funds futures prices. This tool effectively captures the market’s ongoing digestion of new economic data and serves as a key indicator for shifts in monetary policy expectations.
How Nonfarm Payroll Data Reshaped July Rate Hike Odds
The June nonfarm payroll report, released on July 2, was the immediate catalyst for recent shifts in rate expectations. The report showed just 57,000 new jobs—well below the market’s forecast of 110,000 to 114,000. Combined revisions for April and May reduced prior figures by 74,000 jobs. Before the data release, the market assigned about a 30% probability to a July rate hike, which plunged to below 20% afterward.
This report signaled three key trends: a sustained slowdown in job growth, labor force participation falling to a five-year low (masking underlying weakness), and corroboration from leading indicators like ADP employment and initial jobless claims. Essentially, the nonfarm payroll data acted as a "data correction" for the real state of the labor market—prompting a reassessment of the previously overstated "economic resilience" narrative.
However, the unemployment rate fell from 4.3% in May to 4.2%, confirming some resilience in the job market. This gives the Fed more policy flexibility on the employment front, allowing greater focus on inflation.
Waller Warns of Inflation Risk Reversal: Policy Focus Shifts
Federal Reserve Governor Christopher Waller delivered a clear message at the Bank of Italy monetary policy conference in Rome: With the US labor market stabilizing, high inflation has replaced employment weakness as the primary risk facing the US economy.
Waller noted that a year ago, he advocated rate cuts due to poor labor market conditions and was willing to tolerate a longer timeline for inflation returning to target. Now, the situation has fundamentally reversed—"the labor market has stabilized, but inflation is accelerating," forcing the Fed to reassess its policy stance. Waller stated, "The risks have completely reversed. This changes how you think about monetary policy."
Despite global oil prices retreating to around $70 per barrel—back to pre-conflict levels following US and Israeli strikes on Iran, helping ease overall price pressures—the Fed’s post-June meeting forecasts still show its preferred inflation gauge ending the year more than a percentage point above the 2% target. Tim Duy, Chief US Economist at independent research firm SGH Macro Advisors, observed that with unemployment relatively low and inflation persistently above target, nine Fed officials now anticipate the need for policy tightening this year.
Internal Fed Disagreement: The Debate Over Forward Guidance
Beyond policy direction, internal Fed debates over communication tools are intensifying. Waller strongly endorsed the value of forward guidance, arguing that when used appropriately, it can significantly enhance monetary policy effectiveness. He cited Fall 2021 as an example—when the Fed hadn’t officially raised rates, but successfully guided market expectations, resulting in a steady rise in rates.
However, Waller also stressed the importance of flexibility. He warned that overly rigid use of forward guidance can become a policy obstacle. Drawing on lessons from 2020–2021, he noted the Fed’s inflexible commitment to low rates amid rapidly rising inflation, which persisted until a forced rate hike in March 2022—exposing the pitfalls of excessive guidance. "Forward guidance is more an art than a science," Waller said. "If it’s not flexible, it can impede policy transmission; sometimes it’s best not to use it at all."
This stance subtly diverges from that of new Fed Chair Kevin Walsh. At the June FOMC meeting, Walsh stated the Fed will no longer provide rate forward guidance, instead relying entirely on the latest economic data for meeting-by-meeting decisions. This disagreement reflects deep tension within the Fed between "rules-based" and "data-dependent" policy philosophies.
Dot Plot Signals Hawkishness: Uncertainty in the 2026 Rate Path
The June FOMC dot plot sent a strong hawkish signal. The median federal funds rate forecast shifted higher across the board: the year-end 2026 median rose from 3.4% (in March) to 3.8%, erasing the previously implied rate cut. Of the 18 officials providing forecasts, nine expect at least one rate hike in 2026, five expect two hikes, and one expects three.
This distribution means the Fed is nearly split—nine officials support hikes, nine expect rates to remain unchanged or decline. The dot plot’s shift drew market attention because it marked a fundamental change from March, when no one favored a rate hike that year.
For markets, the hawkish revision to the dot plot means the risk of "higher for longer" rates is being repriced. The current federal funds target range remains at 3.5% to 3.75%. If a September hike materializes, it would be the first rate increase since the start of the 2025 easing cycle, signaling a substantial policy shift.
How Rate Hike Expectations Impact Crypto Markets and Risk Asset Pricing
Changes in rate expectations affect crypto markets through two main channels: first, the discounting effect of risk-free rate changes on risk asset valuation models; second, shifts in market liquidity expectations influencing risk appetite for speculative assets.
When the market anticipates higher odds of rate hikes, rising risk-free rates reduce the present value of risk assets. Crypto assets, known for high volatility and long duration, are especially sensitive to rate changes. Conversely, lower rate hike probabilities support risk asset valuations.
Currently, the 74.3% probability of holding rates steady means a July hike is not an imminent threat. But the September hike probability has climbed to 46.2%, approaching coin-flip odds. This suggests the market hasn’t fully priced out a rate hike this year—it’s merely been pushed to Q3. Polymarket data shows an 89.5% probability for no July hike, indicating prediction markets are more dovish than CME’s tool. This discrepancy highlights the high uncertainty in current market expectations.
For crypto market participants, the June CPI data to be released on July 14 will be the key input for judging the July FOMC decision and subsequent rate hike odds. It’s the last major inflation data point before the Fed’s July 28–29 meeting. If CPI shows inflation rising faster than expected, July rate hike odds could rebound; if inflation is subdued, the market will further cement expectations for holding rates steady and reassess the September probability matrix.
From Rate Expectations to Asset Allocation: Macro Narratives and Trading Logic
Shifts in rate expectations not only affect short-term price trends for crypto assets, but also deeply influence investors’ asset allocation logic. When rate hike expectations rise, investors tend to reduce risk exposure and increase allocations to cash or short-duration assets. Conversely, cooling rate hike expectations often drive flows into high-beta assets.
The core market dilemma now is that the Fed’s policy framework is shifting from "forward guidance-driven" to "data-dependent." This transition increases uncertainty about the policy path—markets can no longer rely on clear Fed guidance to anticipate rate moves, but must interpret each economic data release themselves. This uncertainty is itself a key variable in pricing risk assets.
For investors allocating both crypto and traditional financial assets, changes in rate expectations provide a cross-asset linkage framework. Gate now offers real US stock trading, allowing users to trade US, Hong Kong, Korean stocks, and ETFs directly with USDT—no need for a separate brokerage account or manual USD conversion. This means investors can adjust crypto and US stock allocations on a single platform, responding more flexibly to macro shifts.
Summary
CME FedWatch data shows a 74.3% chance the Fed will hold rates steady in July, and a 25.7% probability of a 25 basis point hike. This probability distribution reflects the market’s repricing after June nonfarm payrolls came in well below expectations. Fed Governor Waller warns that inflation risk has overtaken employment risk, forcing a policy shift toward inflation, while internal Fed debates over the fate of forward guidance remain pronounced. The June dot plot shows nine officials support a rate hike this year, with rate path uncertainty at its highest in years. The June CPI data, to be released July 14, will be a crucial variable for judging future policy direction. Under the new data-dependent policy framework, every marginal shift in rate expectations will transmit to pricing for crypto assets, US stocks, and other risk assets.
FAQ
Q1: How is the CME FedWatch 74.3% probability calculated?
The CME FedWatch Tool derives market-implied probabilities for FOMC rate decisions from 30-day federal funds futures prices. It provides real-time insight into collective market expectations for rate movements and is a key indicator for tracking changes in monetary policy outlook.
Q2: What does a July hold mean for the crypto market?
Holding rates steady in July means a rate hike isn’t an immediate threat, supporting short-term stability in risk asset valuations. However, the market has pushed rate hike expectations to September—there’s a 46.2% probability of a cumulative 25 basis point hike then. So, a July hold is a "delay," not a "cancellation," and its impact on crypto is more about short-term sentiment boost than a lasting trend shift.
Q3: What does Waller mean by "inflation risk reversal"?
Waller explained that a year ago, the Fed’s main concern was a weak labor market, prompting rate cuts and tolerance for a longer timeline for inflation to return to target. Now, the labor market has stabilized, but inflation is accelerating. Policy risk has shifted entirely from "employment downside" to "inflation upside," fundamentally changing monetary policy thinking.
Q4: Why is the June CPI data so important?
June CPI, to be released July 14, is the last major inflation data point before the July 28–29 Fed meeting. If inflation overshoots, July rate hike odds may rebound; if inflation is subdued, the market will further cement expectations for holding rates steady. This data will directly influence the Fed’s July decision and market pricing for September rate hike odds.
Q5: What is the market impact of the Fed abandoning forward guidance?
Fed Chair Walsh has stated the Fed will no longer provide rate forward guidance, instead relying entirely on the latest economic data for meeting-by-meeting decisions. This means markets can no longer depend on clear Fed signals to anticipate rate moves, but must interpret each economic release themselves. Rising policy uncertainty increases volatility for risk assets, so investors need to pay close attention to the timing of economic data releases and divergences between market expectations.
Q6: How can Gate users manage market volatility from shifting rate expectations?
Gate now offers real US stock trading, allowing users to trade US, Hong Kong, Korean stocks, and ETFs directly with USDT. Users can adjust crypto and US stock allocations on a single platform, flexibly managing risk exposure in response to macro shifts and achieving dynamic cross-asset allocation.
