US inflation cooled for a second consecutive month in July, with the Consumer Price Index rising 3.4% year-over-year, down from 3.5% in June and in line with economist expectations. On a monthly basis, the index rose 0.1% in July after falling 0.4% in June, according to the Bureau of Labor Statistics. Core CPI, which strips out food and energy, rose 0.2% for the month and eased to 2.5% annually — its lowest annual reading since February.
Shelter costs, which have driven a disproportionate share of inflation for much of the past two years, rose just 0.1% in July and accounted for roughly two-thirds of the month's headline increase. Food prices also rose 0.1%, with food away from home up 0.3%, while motor vehicle insurance costs were among the categories that declined.
A knife-edge call for the Fed's September meeting
The report leaves the Federal Reserve's September decision genuinely contested rather than settled. Following the release, CME Group's FedWatch tool showed traders pricing roughly a 62% probability that the Fed holds rates at its current 3.5%-3.75% target range, versus roughly 38% odds of a 25-basis-point hike — a meaningful shift from where odds stood in the days before the report, when a hike looked more likely. With inflation still running above the Fed's 2% target even as it cools, several economists now see the odds tilting toward an October move regardless of what the Fed decides in September.
Markets read the report as inflation-friendly
US stock futures rose on the release, extending a pattern in which cooler-than-fixed CPI prints have consistently supported risk assets in 2026. For crypto markets specifically, softer inflation data has tended to ease pressure on the rate path that shapes liquidity conditions more broadly — the same dynamic that has helped fuel gold's rally to record highs this year, as investors position for the possibility that the Fed's tightening cycle is closer to its end than its middle.
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With core inflation at its lowest level since February and headline CPI easing for a second straight month, the July report gives the Fed room to argue either side of the September decision — a hold that acknowledges progress on inflation, or a hike that guards against inflation remaining stuck above target for a third consecutive year.
