Newsletter · 2026-07-20 · Ashutosh Agarwal

Cold June CPI Kills the July Rate Hike Bet as Warsh Stays Coy - The Fed & the Front End - Week of July 20, 2026

Rates and macro podcast intelligence for the week of July 20, 2026. A surprisingly cold June CPI report landed the same morning Kevin Warsh opened his first testimony as Fed chair, collapsing July hike odds from roughly 40% to about 12%, while the deeper September fight stayed wide open.

The Fed & the Front End

Week of July 20, 2026: Cold June CPI Kills the July Rate Hike Bet as Warsh Stays Coy

The single most important thing that happened this week is that the June inflation report came in cold, genuinely, surprisingly cold, and it landed on the exact morning Kevin Warsh sat down for his first testimony to Congress as Fed chair. Consumer prices actually fell four tenths of a percent on the month, the biggest one-month drop since April 2020, and the "core" measure the Fed watches most closely (which strips out food and energy) didn't rise at all for the first time in more than five years. Overnight, the market's bet on a rate hike at the Fed's July 29 meeting collapsed, from roughly 40% to about 12%. Warsh, for his part, refused to take a victory lap: he called it "one data point," said he did not want to "cherry-pick data," and repeated that the "mission is not accomplished." So the near-term picture flipped dovish in a single day, while the medium-term question, does the Fed still hike in September, or is this the top, cracked wide open. The loudest, deepest commentary this week leaned toward "hold," but the hawkish case is far from dead, and one bank's language-tracking model says the past two weeks have actually been the most hawkish stretch of Fed-speak since 2022. Here is what was actually said this week, and by whom.

TL;DR

The June CPI report (out July 14) was the event of the week: headline prices fell 0.4% on the month (the biggest drop since April 2020), pulling the annual rate down to 3.5% from 4.2%, and core prices were flat, with the annual core rate easing to 2.6% from 2.9%. The odds of a July rate hike cratered, different desks clocked it falling from roughly 40-42% to somewhere between 12% and 20%, and a July hike is now widely seen as off the table.
Warsh used his first congressional testimony (July 14-15) to talk tough on inflation while telling markets almost nothing about what he'll actually do. He promised to "get rid of" the inflation "tax," pledged "regime change" at the Fed, refused to give forward guidance, and leaned on five outside "task forces" (with names like Marc Andreessen, Raghuram Rajan and Mervyn King) to rethink how the Fed measures data, communicates, and runs its balance sheet.
The debate is genuinely two-sided, but this week the "hold" camp was louder: Greg Ip of the Wall Street Journal, Wolfe Research's Stephanie Roth, the Conference Board, Yardeni Research and CFRA all argued there's little case to hike. The hawkish side rests on the Fed's own split committee, hawkish speeches from Governor Chris Waller and Dallas Fed chief Lori Logan, RenMac's call for a September hike, and, above it all, oil, which is climbing again as the Iran conflict reheats.

What's new

The June inflation report came in cold enough to take a July hike off the table. On July 14, the Bureau of Labor Statistics reported that consumer prices fell 0.4% in June versus expectations for roughly a 0.2% dip, after a prior month that had risen. That pulled the annual inflation rate down to 3.5% from 4.2%, and the "core" rate (excluding volatile food and energy) was flat on the month, up just 2.6% over the year, down from 2.9%. As mortgage-industry host Robbie Chrisman summed it up, core CPI was "unchanged versus expectations of a 0.2% increase... It's a very benign inflation report," with the two-year Treasury yield sitting at 4.17% afterward Chrisman Commentary - Daily Mortgage News (Jul 14). The reaction in the rate-hike odds was violent. On CNBC's Power Lunch, CME's Rick Santelli said the odds of a July hike were "down from 42% yesterday to just 12% today," while for December, traders still saw "a 42% chance of a quarter-point hike" and "a 30% chance we could get at least two" Power Lunch (Jul 14). Ben Emons, founder of FedWatch Advisors, put the same collapse in one line on the RiskReversal Pod: "we had the hike priced for almost 40% yesterday in July. We dropped right down to 12%... That's how quickly that changes" RiskReversal Pod (Jul 15). A day later, wholesale prices (the Producer Price Index) also came in soft at -0.3% for the month, though the year-over-year figure was still an elevated 5.5% Squawk on the Street (Jul 15).

Warsh talked tough and told markets almost nothing. The new chair's first testimony was the political set-piece of the week, and his message was deliberately hard to trade on. He framed inflation as a moral failing to be reversed: "The 63 months of inflation above target has been an unfair burden. It has been a tax on the American people and businesses. We plan on getting rid of that tax. If that means we need a regime change in policy... that's what we aim to do" Kudlow (Jul 14). He promised results, "if we get policy right, and I can assure you we will, the inflation surge of the last five years will be a thing of the past," but pointedly refused to say how, describing his approach as "a lot less forward guidance and a lot of listening" and "deeper, more serious discussions" instead of pre-commitments Squawk on the Street (Jul 14). On day two, asked directly about the cold CPI number, he refused to declare success: "It's one data point. The reason I created a task force on data is I do not want to overread or cherry-pick data. There might be some that look at this morning's data and say, mission accomplished, everything is swell. That is not my view" Squawk on the Street (Jul 15). Pressed by Democrats on whether he'd cave to White House pressure, he said only, "My commitment to you is to follow the law and follow the data, follow our very best judgment" The Exchange (Jul 14). The takeaway across the week: he successfully made no news, which was the point.

We got the full roster of Warsh's five "task forces," and it's a heavyweight, ideologically mixed group. Stifel's Chief Investment Officer Michael O'Keefe devoted an entire episode to unpacking them, and the detail matters because these panels are meant to rewrite how the Fed operates by year-end. The five areas are productivity and jobs, data, the balance sheet (which currently sits "just under $7 trillion"), communications, and inflation frameworks. The outside leaders O'Keefe read off include, on productivity and jobs, Marc Andreessen (co-founder of the venture firm Andreessen Horowitz), Asha Sharma (CEO of Xbox) and Stanford's Charles I. Jones; on data, Harvard's Raj Chetty, former Walmart CEO Doug McMillon and Chicago's Kevin Murphy; on the balance sheet, former Fed governor Jeremy Stein, former Reserve Bank of India governor Raghuram Rajan and former Treasury chief economist Karen Dynan; on communications, former Bank of England governor Mervyn King and former Brazilian central bank chief Arminio Fraga; and on inflation frameworks, Harvard's Greg Mankiw, NYU's Thomas Sargent and former Bank for International Settlements adviser William White. O'Keefe's read is that the group is "pretty balanced. Certainly highly credentialed and experienced," and he came away "pretty optimistic." He also flagged the through-line in Warsh's thinking: a preference for "real-time data over lagged indicators," a smaller balance sheet used only in genuine crises, and far less signaling of future policy Stifel SightLines Podcast (Jul 16).

A single bank's language model says the last two weeks were the most hawkish Fed-speak since 2022, even as hike odds fell. This is the week's most counterintuitive data point. On J.P. Morgan's At Any Rate podcast, strategist Patrick Locke called the CPI print "the second biggest disappointment relative to consensus going back to the start of this cycle," with weakness across the board: "core goods fell 10 basis points. Core services was flat. And kind of surprisingly, super core was also negative at 20 basis points... the first time it contracted since March of 2025." Yet a colleague noted that J.P. Morgan's "Hawkduff" index, which uses natural-language processing to score how hawkish or dovish Fed officials sound, showed a two-week change that is "the most hawkish since 2022," driven by Governor Waller's and Dallas Fed chief Lori Logan's comments plus Warsh's. In other words, officials have been talking tougher even as the data got softer, which is exactly why the market has mostly "pushed back" its hike expectations rather than erasing them, and why J.P. Morgan is reluctant to abandon its bullish-dollar view before the Fed meeting At Any Rate (Jul 17).

The market did the Fed's tightening for it, then partly reversed. The mechanics of the front end this week were their own story. Heading into the CPI report, short-term Treasury yields had "hit new 2026 highs" on fears that the reheating Iran conflict and higher oil would revive inflation Chrisman Commentary - Daily Mortgage News (Jul 14). Then the cold print sent the two-year Treasury yield down about 8-10 basis points and steepened the yield curve. As Santelli described it, "two-year yields are down about eight basis points and 10-year yields are down about half of that," steepening the curve from "the mid-20s just about three weeks ago to almost 40 basis points" Power Lunch (Jul 14). Even so, policy still feels restrictive on Main Street: the 30-year fixed mortgage sat around 6.65%, roughly a one-year high Squawk on the Street (Jul 15).

The debate

This is a real, roughly balanced argument. But the character of it shifted this week: the cold CPI handed the microphone to the doves, while the hawks are leaning on the committee's own dots, a couple of pointed official speeches, and, most of all, oil.

The doves (hold, and maybe eventually cut). The most forceful "no hike" case came from Greg Ip, chief economics commentator at the Wall Street Journal, who didn't hedge: "The CPI data are great... this isn't just like one number. The CPI has been very good for the last five of the last six months." His argument is that the Fed's preferred inflation gauge (PCE) has been running strangely hot relative to CPI and will likely "converge back to CPI inflation," in which case "there's no five-alarm fire here. There's no case for raising rates this month. I don't think there's much strong case for raising rates at all this year." He was careful to add this isn't a case for cutting either, "Nominal GDP is very strong. Financial conditions are very loose," but rather that rates may already be near neutral The Exchange (Jul 14). Stephanie Roth, chief economist at Wolfe Research, made the same call and dated the turn: inflation "was going to peak around this time of year," tariff- and AI-related price pressure is fading, and the soft CPI means a July hike "no longer is likely to happen at all." She expects the Fed to hold this year, with core inflation still "somewhere around 3%... 100 basis points, if not a little bit more" above target, so cuts are "very far from now," though she wouldn't rule out a September hike "if the data warranted it" The Pomp Podcast (Jul 15). The Conference Board's senior U.S. economist Yelena Shulyatova, who had just moderated a discussion with Governor Waller, expects "the Fed staying on hold" through the second half, arguing underlying disinflation (cooling housing, tariff effects rolling off, gasoline still below June's average) will prevail Bloomberg Businessweek (Jul 14). And veteran strategist Ed Yardeni of Yardeni Research called the report "phenomenally good," said May will likely mark "the high watermark" for inflation, and pointed to unit labor costs, a key underlying wage-inflation gauge, falling "to 0.5 percent" as "reassuring"; his long-running "roaring 2020s" thesis is that AI-driven productivity keeps inflation contained Power Lunch (Jul 14). CFRA's Sam Stovall added that although "for all of the new Fed chairs of the past 50 years, a rate hike has been their first move," he thinks "the Fed probably will not be raising rates sometime this year," but is "probably done cutting rates," leaving markets to "tread water" The Exchange (Jul 14).

The bluntest dovish version came from money managers Porter Collins and Vincent Daniel of Seawolf Capital, who argue the Fed simply can't afford to hike: "the Fed is in a box... interest expense as a percent of overall tax receipts keeps getting larger. So they painted themselves into a corner. I don't think they can afford higher rates and really fight inflation anyway." Their base case is that Warsh "allows the CPI and its structure... to create lower inflation" so he can claim price stability, with "maybe we get 25 [basis points]" of hikes "at most" and "rate cuts in '27." They even cited a betting-market contract implying "the next Fed rate hike" won't "occur before 2027," and voiced deep skepticism about the official data, with Daniel noting his own health-insurance premiums are set to jump 30% even as "super core would show that I'm paying less in health care" RiskReversal Pod (Jul 16). The hosts of the Forward Guidance podcast made a market-based version of the dovish case: forward inflation expectations embedded in bonds are signaling "1% inflation" a year out and "below 2%" over two years, so "the Fed has been overly hawkish on the nominal rates," which is "constricting a little bit of credit in certain pockets of the market" Forward Guidance (Jul 17). And Jeff Snider of Eurodollar University read the cold core print as outright weakness, not good news: the drop was "the first decline in the core CPI rate since May of 2020," and across the report "there is much, much more evidence for demand destruction than there is even a hint of evidence for second-order inflation." His warning is that the Fed may hike anyway into a slowing economy, "trichet-ing itself," his phrase for repeating the European Central Bank's 2008 mistake of raising rates just before a downturn Eurodollar University (Jul 15).

The hawks (a hike is still coming, probably in September). The hawkish case starts with the Fed itself, which remains split roughly down the middle, "approximately half of the 19 policymakers forecasting higher interest rates by year-end and the other half signaling support for keeping rates unchanged or cutting" Insight On Business the News Hour (Jul 14). Two officials pressed the case this week. Governor Chris Waller, speaking Monday, said "if we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," while cautioning against "fighting the last war" Bloomberg Businessweek (Jul 14), a speech that, as J.P. Morgan noted, briefly pushed two-year yields to new highs before the CPI print undid it. Dallas Fed President Lori Logan went further, suggesting "modestly higher interest rates would actually better balance the outlook and risk" At Any Rate (Jul 17). The most concrete forecast came from RenMac's head of economics, Neil Dutta, who, despite thinking inflation is genuinely slowing, argued one soft month won't move the committee: "that's really not going to change the dial in any material sense for the hawks on the Fed, which is what ultimately matters... you basically need to see more of this and more of this very soon." His base case is "they probably do hike in September," with "maybe two hikes... at most," on the view that "inflation owns the Fed's reaction function" because the economy is running much closer to the Fed's growth target than its inflation target RenMac (Jul 17). The Key Wealth Matters team agreed the market is now "fixated on October" for a single hike, and stressed that "the Fed needs more than just one CPI release," it wants a trend across multiple reports, including the PCE data due later this month, before it changes course Key Wealth Matters (Jul 17). And gold-focused investor Adrian Day, of Adrian Day Asset Management, noted just how far the pendulum had swung before the CPI: the market had been "pricing in a 100% chance of a rate hike by year end, 40% of a second hike," a shift he attributes squarely to "the Iran war and the oil price spike" Mining Stock Daily (Jul 14).

The trades in play

Own duration and be patient on mortgages. With hike odds falling and the curve steepening, Santelli's read is that the peak in the 10-year Treasury yield (which drives mortgage rates) is likely behind us: he expects the 10-year to stay "under the May 19th high watermark... of 4.67%," and thinks a home-buyer could "be a bit patient" and possibly see a "retest [of] the Feb 27 closing yield lows under 4%," not a huge move, but meaningful on a 30-year mortgage Power Lunch (Jul 14).
The dollar and the "carry" trade. J.P. Morgan came into the second half bullish on the dollar, but framed it as contingent on the Fed staying hawkish; the cold CPI was "a setback... in a tactical sense." Their higher-conviction idea is "carry," borrowing in low-yielding currencies to buy higher-yielding ones, which they call "the only game in town" now that currency-market volatility has collapsed to "five or six years low." The specific expressions: long the Colombian peso (funded by shorting the yen, Swiss franc and low-yielders), with the yen a wildcard given talk of Japanese pension funds repatriating money home At Any Rate (Jul 17).
Energy and refiners on a tight oil market. Seawolf leans bullish on oil and refiners, arguing the Iran conflict has "gummed up" a system optimized for smooth delivery, so "gasoline prices probably aren't going to come down as fast as Trump wants them to," with diesel and jet fuel "very tight." Crack spreads (the profit margin refiners earn between crude and finished fuel) have stayed elevated on years of no new U.S. refinery supply, and, by their tally, "over 21 of Russia's 38 largest oil refineries have been struck" RiskReversal Pod (Jul 16).
Gold as insurance, after a brutal shakeout. Gold "hit an all-time high of $5,589 an ounce on January 28th" and then fell "more than 25% to roughly $4,100 an ounce" by late June, a pullback the Economic War Room's Kevin Freeman attributes to the "Warsh shock" of a credible hard-money chair strengthening the dollar. His argument for still holding some is the "deep machine of inflation" underneath: the M2 money supply at "a record high around $23 trillion" and still growing, and central banks buying "over 1,000 tons a year," such that "for the first time since 1996, gold overtook U.S. treasuries as the single largest reserve asset held by the world's central banks" Economic War Room (Jul 16). Adrian Day agreed gold faces near-term headwinds from a strong dollar and higher yields, but stays a long-term bull Mining Stock Daily (Jul 14).
Get more cautious on the AI complex. Several voices flagged cracks in the trade that has powered everything. The Key Wealth Matters team noted the tech-heavy Nasdaq fell about 3.2% on the week as AI names "gave back a lot of their meteoric performance," and pointed to a bifurcating credit market, "Oracle getting downgraded, just a notch above high yield," as AI "hyperscalers" flood the bond market with debt Key Wealth Matters (Jul 17). The Forward Guidance hosts saw the same "hyperscaler spreads breaking out higher" but flagged the contrarian risk of "a hyperscaler squeeze" if cheaper AI models mean less capital spending than feared Forward Guidance (Jul 17).

Read-throughs

Less guidance means a jumpier front end, and this week proved it. Warsh's decision to stop telegraphing the Fed's next move is reshaping how short-term rates behave. The clearest illustration was the whipsaw around Governor Waller's Monday speech, which "topped the two-year" yield by dangling a possible July hike, only for the cold CPI to reverse it two days later. As the Forward Guidance hosts put it, "by trying to stifle volatility, we actually just created more variance in the two-year yield" Forward Guidance (Jul 17). RenMac's Neil Dutta made the deeper point: by refusing to share his own reaction function, Warsh is engaging in "unilateral disarmament," "by not letting your own views be known, you're making the views of everyone else more important," so markets now "latch on to what the others are saying." That makes committee members like Waller and Logan, paradoxically, more market-moving than the chair RenMac (Jul 17). The concrete cost, per the mortgage desk, is that "a less transparent Fed under Warsh could increase meeting-to-meeting policy uncertainty, making incoming data and Fed communication more influential in driving short-end Treasury yields" Chrisman Commentary - Daily Mortgage News (Jul 14). And as Wolfe Research's Roth warned, in a world with no forward guidance "every data print becomes a lot more important... we'll probably just see volatility pick up" The Pomp Podcast (Jul 15).
The whole inflation question increasingly hinges on one debate about AI. Underneath the CPI numbers is a fight over whether AI is inflationary now or disinflationary later, and it runs right through Warsh's own thesis. Several podcasts pinned the near-term "AI inflation" on the memory-chip shortage: Roth noted that "computer software and accessories... are up about 15% year-over-year," feeding the data now but likely fading The Pomp Podcast (Jul 15), while Ben Emons argued the "AI inflation" is real because "the shortage is so significant" in memory, with a live marketplace showing "a tremendous explosion of these prices" RiskReversal Pod (Jul 15). The same episode connected this to IBM's roughly 25% one-day stock crash: the company blamed clients who "shift[ed] their quarterly CapEx spend towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," behavior Emons and host Dan Nathan called a possible "canary in the coal mine" for double-ordering and a future glut of computing gear. Warsh, notably, is betting that AI-driven productivity eventually pushes inflation down, which is exactly why his optimism on AI is doing so much work in his case for patience, and exactly the assumption the more hawkish members of his own committee don't share.
Oil, and the Iran conflict behind it, is the single biggest swing factor. Nearly every voice this week agreed the disinflation story depends on oil staying calm, and it isn't. WTI crude was around $80 (down from a June average near $82 and a May average of $98.5, but up "20% off the low" as the conflict reheated), with Brent near $85-87 Squawk on the Street (Jul 15). Rebel Capitalist's host laid out the loop plainly: if the Strait of Hormuz stays disrupted, oil stays elevated and the recent inflation spike sticks; if the conflict resolves, "oil goes into the $50s" and "the two-year goes back down to 3.5%... it goes down huge" Rebel Capitalist News (Jul 16). That is the crux: the June data captured the pre-flare-up drop in oil, so the July numbers may look worse even if underlying inflation keeps cooling.

What changed this week

Two things, pulling in opposite directions. First, the near-term picture went sharply dovish: a genuinely cold June CPI report, headline down 0.4%, core flat, the biggest monthly drop since April 2020, took a July rate hike off the table, with the odds collapsing from roughly 40% to around 12% in a single day, and Warsh's first testimony gave the hawks nothing new to hang a July move on. Second, and cutting the other way, the medium-term fight got more contested, not less: the reheating Iran conflict pushed oil back up (Brent near $85, roughly 20% off its low), and J.P. Morgan's language model registered the most hawkish two-week stretch of Fed-speak since 2022, thanks to Waller and Logan. So the consensus now is a July hold, a live September fight, and a Fed that, because it has stopped telegraphing, will make every one of the coming data points, starting with the PCE inflation report due later this month, matter more than usual. As one host put it, we've entered a period where the two-year Treasury, not the Fed chair, is doing the talking.