July Inflation Was In Line With Expectations. Expectations For a Fed Rate Hike Decreased.

Expectations that the Federal Reserve will hold interest rates unchanged in its September meeting increased on Wednesday after the July inflation rate was in line with estimates.

Figures from the CME Group showed that chances of a rate hike to 3.75%-4% decreased by more than six percentage points compared to the day prior after the report was released. They now stand at 41.9%.

In turn, expectations for the rate to continue between 3.5% and 3.75% increased by the same amount, now standing at 58.1% compared to 51.6%.

Headline and core inflation rose in line with expectations in July, according to data released by the Bureau of Labor Statistics on Wednesday.

The former rose 0.1%, while the latter, which excludes more volatile components like food and energy, did so 0.2%. Annual figures stood at 3.4% and 2.5% respectively.

Federal Reserve Chair Kevin Warsh is already navigating divisions among policymakers over how aggressively to respond to price increases.

At its July meeting, the Federal Open Market Committee voted 9-3 to keep its benchmark interest rate unchanged at 3.5% to 3.75%. All three dissenters wanted a quarter-point increase. It is unclear whether the most recent figures will change their perspective.

Cleveland Federal Reserve president Beth Hammack said this week that more than one interest rate hike could be needed.

Hammack, who among the minority of FOMC voters who supported increasing rates in the July meeting, told Yahoo Finance that "in general, one 25 basis point move probably doesn't do a whole lot for the economy."

"So it's probably some number of [movements]. But I don't want to prejudge what that number is going to be," she added, saying she doesn't "know exactly where we will end."

Among those who voted in favor of holding rates where they are, Fed Governor Lisa Cook said that even though she voted against hiking interest rates, she is ready to do so if inflation does not decrease towards the central bank's 2% goal.

Speaking during a speech in Alaska, she said she believes "the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point."

"If I do not see signs of continued disinflation soon, I am prepared to act," she noted.

Another official who defended the decision was Philadelphia Fed President Anna Paulson, who said she believes the current level of interest rates is enough to drive inflation back to the central bank's goal.