The latest inflation data has provided a necessary reprieve for investors, effectively cooling expectations for near-term interest rate hikes. According to Daniel Hynes of ANZ, the market is currently pricing only a 10% chance of a rate increase at the September FOMC meeting, down from a peak of 27% in late July. This shift has revitalized gold, with exchange-traded funds recording $3 billion in inflows during July, signaling a decisive end to a two-month trend of outflows.

Despite the market’s optimism, economists remain divided on whether the Federal Reserve can truly pivot. Diane Swonk of KPMG cautioned that while headline inflation is trending downward, service-sector pressures remain stubbornly elevated, eroding the central bank's credibility. Similarly, Bill Adams of Fifth Third Commercial Bank noted that despite the cooler PPI print, specific components like portfolio management services could exert upward pressure on July’s core PCE. James Knightley of ING maintains a more dovish outlook, projecting that cooling housing costs and a balanced labor market will support a continued pause well into 2027. With another CPI report and the Jackson Hole symposium scheduled before the September 16 decision, the Fed is expected to maintain its wait-and-see stance until the full scope of August data is finalized.