Fed Rate Hike Odds Fall to 4% After June PPI Posts Its Biggest Drop Since April 2025

Since Tuesday's CPI report showed core inflation flat month-over-month, the June Producer Price Index has confirmed the same story from a different angle. The Bureau of Labor Statistics reported Wednesday that PPI rose 5.5% year-over-year, down from 6.5% in May and well below the 6.2% economists expected, according to TradingKey. Month-over-month, producer prices fell 0.3%, the largest monthly drop since April 2025.

Core PPI, which strips out food and energy, rose 4.7% year-over-year, down from 4.9% and below the 5.1% forecast. The monthly core figure came in at 0.2%, below the expected 0.3%.

Traders reacted immediately. The odds of a Fed rate hike at the July meeting have fallen to just 4%, according to Crypto Briefing, citing data from the Kobeissi Letter that also flagged this as the sharpest monthly PPI decline since April 2025. September hike odds dropped from 59% to 41.5% in the span of 24 hours. Rate-cut odds by September, however, remain low at just 3.9%, meaning markets aren't yet betting on the Fed reversing course entirely. They're just betting it won't tighten further.

Gasoline did the heavy lifting

The driver behind the drop is the same one that pulled down June's CPI: energy. Gasoline prices fell roughly 10% month-over-month in June, according to TradingKey, while the average price of Brent crude dropped from $103.70 a barrel in May to $84.40 in June. That's a sizable slide in the input cost that ripples through trucking, manufacturing, and shipping before it ever shows up on a store shelf.

PPI is one step further upstream than CPI. Producer prices reflect what businesses pay before goods reach consumers; when input costs fall, retail prices tend to follow with a lag of weeks or months. A soft PPI print today is being read as an early signal that CPI pressure could keep easing into the fall.

Why this isn't a victory lap

One month of falling producer prices, driven overwhelmingly by a single category, gasoline, is not the same as a broad-based, durable disinflation trend. Core CPI is still running well above the Fed's 2% target, and a single soft PPI print doesn't erase months of above-target readings. Energy prices are also volatile and can reverse quickly if OPEC+ production decisions, geopolitical shocks, or refinery disruptions push crude back up.

According to TradingKey, Fed Chairman Kevin Warsh was scheduled to testify before the Senate Banking Committee the same day the PPI report came out, and how he responded to the data was expected to be a focus of market attention.

That said, the fact that PPI and CPI are telling the same disinflation story within the same window, rather than diverging, is a meaningfully stronger signal than any single data point alone. The Fed's own dual mandate gives it room to hold steady when both inflation gauges cool in tandem, without looking like it's ignoring price stability.

What happens next

The Federal Open Market Committee, chaired by Jerome Powell, has not yet held its next meeting, and no rate decision has been made. Markets are now pricing in a hold as the overwhelming base case for July, with September increasingly leaning the same direction.

The next major data point the Fed will weigh is the Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, which has not yet been released for June. Until that print and any statements from Powell or other FOMC members arrive, the 4% hike odds and 41.5% September odds remain market bets, not settled outcomes. A single hot jobs report or a rebound in oil prices could move those numbers again before the Fed ever meets.