Fed Scours Fresh Inflation Data for Interest-Rate Cues as Mid-Term Elections Loom

This week, the Fed will get a bit of help in its ongoing reading of the economy’s tea leaves. 

On Wednesday, the Bureau of Labor Statistics will release July’s consumer price index data, likely to be one of 2026’s most influential reports for the central bank as its monetary policy committee prepares for a Sept. 15-16 meeting. The August data will come just days before that meeting, and there will be one more jobs report after Friday’s showed unexpected job losses. But Fed Chair Kevin Warsh and his fellow committee members, economists and Wall Street will be scrutinizing whether this week’s figures confirm a shift in the economy, and if June marked the beginning of a sustained inflation slowdown, especially as supply chain pressures show signs of easing.  

Changing Tides? 

As of Friday, the CME Group’s FedWatch tool placed the probability of an interest rate hike at just 43% at the September meeting. 

“The market is now looking for confirmation that the forces driving inflation higher, including tariffs and higher goods prices, are becoming less influential rather than spreading more broadly through the economy,” Thomas Urano, co-chief investment officer at Sage Advisory, told The Daily Upside. “A second consecutive favorable CPI report could move the conversation toward whether inflation is cooling enough for the Fed to remain comfortably on hold and take rate hikes off the table.” 

That distinction is important: 

• Softer inflation data would reduce the urgency for additional tightening and strengthen the argument that current policy is already restrictive enough, Urano said. That doesn’t mean it would immediately put a cut on the table, but it would increase confidence that inflation is moving in the right direction. 
• On the other hand, a hotter-than-expected report would suggest inflation is more embedded than recent data signaled. The Fed would probably continue to consider tightening and push back expectations for eventual easing. 

Political Backdrop: No matter how much the Fed reiterates that it operates independently of the government, it’s difficult to ignore the fact that it’s making decisions just ahead of a midterm election. While President Trump soured on the last Fed chair, Jerome Powell, he’s had a steady line of communication with Warsh, The Wall Street Journal reported last week. That’s a stark change from recent precedent.