Fed Chair Kevin Warsh Testified Before Congress on July 14 and Said Inflation Remains Too High. A Key Inflation Report Came Out the Same Day. Markets Dropped the Odds of a July Rate Hike to 16%, Down From 42% the Day Before. The Odds Have Since Jumped.

Market odds for a July Federal Reserve rate hike whipsawed following Chair Kevin Warsh's July 14 congressional testimony and a surprise cooling in inflation data. June headline CPI fell 0.4% month-over-month the same day Warsh testified, sending rate-hike probability plunging from 42% to 16% in a single session.

Traders initially interpreted the softer print as a potential off-ramp from tightening, but the repricing proved short-lived. By July 22, rate-hike odds had rebounded to 34% as markets recognized the CPI decline stemmed largely from temporary gasoline price drops tied to a U.S.-Iran truce that subsequently collapsed. The reversal highlights the fragility of disinflation progress when driven by geopolitical factors rather than sustained demand cooling.

Warsh's testimony stressed the Fed's commitment to fighting inflation even as the data arrived cooler than expected, setting up conflicting signals that left traders recalibrating positioning throughout the week.