The July consumer inflation data released Wednesday suggests the Federal Reserve may not cut rates as deeply as expected in September, one CIO said in the wake of the Consumer Price Index report.

“In a not-so-subtle shift, the market has moved from worrying about inflation to worrying about economic growth and although many in the market were calling for a 50 bps rate cut next month, it's much more likely that the Fed proceeds as planned with a 25 bps cut in September,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

“The much-awaited Consumer Price Index (CPI) came in line with consensus this morning and it is the ultimate No News, is Good News report because the markets have been on edge and the Fed is looking to cut interest rates and nothing in this report should deter them from doing so.”

Jeffrey Roach, chief economist at LPL Financial, said the Fed may still lower the rate by 50 basis points in September if the global economy experiences another shock like it did on Aug. 5 when indexes plummeted.

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“The probability of the Fed cutting by a half percent is still elevated since investors are still somewhat skittish from recent events,” he said.

It remains to be seen how deeply the Fed will lower rates in September because inflation has not reached its goal of 2%, but the consumer is showing signs of weakness, said Alex McGrath, chief investment office at NorthEnd Private Wealth.

“CPI & PPI both came in at or slightly below expectations which should continue to fuel the fire for the first rate cut in September with the largest remaining question being will it be 25bps or 50bps,” he said.

According to the CME Group‘s FedWatch Tool, market participants are betting there is a 54.5% chance that the Fed will cut rates by 0.25% in September.

The headline Consumer Price Index inflation fell from 3% in June to 2.9% last month on a year-over-year, falling below the consensus forecast of 3% reported by TradingEconomics.

Inflation increased by 0.2% on a monthly basis in July, rebounding from the previous month’s contraction of 0.1% and matching estimates of 0.2%.

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