Two-year yields rose four basis points to 3.97%, the dollar strengthened to 104.3 on the DXY, and the S&P 500 slipped 0.2% from its record close. The print is a reminder that the Fed’s easing path is asymmetric: a hot reading pulls the first cut further out, while a cool one pulls it forward. For now, the market is reading the print as one cut at most in 2026, with September at 58% probability, down from 70% a week ago.
Why the Print Was Hot
Core services excluding housing — the “supercore” measure Powell has flagged repeatedly — accelerated to 3.2% on a three-month annualized basis, the highest since November 2024. Goods inflation, by contrast, moderated as the dollar’s earlier strength passes through to import prices. Shelter inflation, which lags market rents by roughly twelve months, is rolling over, but the supercore stickiness is offsetting that relief. The Cleveland Fed’s nowcast for June had already drifted higher into the print, and the median FOMC participant at the June dot-plot was already at 2.6% core PCE for year-end 2026 — leaving very little room for upside surprise before the Fed pauses further easing.
The Dot-Plot Read
The June Summary of Economic Projections showed the median participant still seeing one cut in 2026, but the distribution widened: seven participants now see no cuts this year, up from four in March. The 2027 median dropped to 2.1%, suggesting the Committee believes disinflation resumes once the base effects roll off in the autumn. The September meeting is now the decisive one — a cut there would imply the Fed is comfortable declaring victory on supercore, while a hold would push the next cut window into 2027 and re-anchor longer-dated yields.
What the Tape Is Telling Us
Regional banks led the move lower, with the KBW Regional Banking Index down 1.8% as the steeper near-end of the curve compresses net interest margins. Megacap technology held up better, with the S&P 500 Information Technology sub-index flat on the day. Gold rose 0.6% to $4,318 an ounce. Bitcoin fell 1.2% to $70,400, suggesting the liquidity tailwind from the earlier soft-landing trade is no longer offsetting the rates headwind. The dollar’s quiet bid to 104.3 is the cleanest tell: a stronger DXY with hotter CPI is the classic cut-delayed-not-denied signal.
The Jackson Hole Setup
Powell’s August 22 keynote at Jackson Hole will be the next inflection point. Markets will parse his language for any softening of the “we need more good data” framing the FOMC adopted in June. If he acknowledges that the supercore reacceleration is transitory — driven by the spring airline fare and auto insurance bursts — the September cut odds can quickly re-price back above 70%. If he instead emphasizes the asymmetric risks to the inflation mandate, the curve bear-flattens further and the regional bank slide extends.
What to Watch Next
Three prints will set the September path. The June CPI release on July 16 needs to show supercore decelerating to 3.0% or below to keep a September cut alive. The June PCE on July 30 needs to confirm the slowdown is in the trimmed mean, not just the volatile components. And the Q2 Employment Cost Index on July 31 — the Fed’s preferred wage gauge — needs to print at 1.0% quarter-on-quarter or below to validate the soft-landing narrative. The macro story has not finished writing itself.