〔Overnight Brief〕Weak US Data Wipes Out Fed Hike Bets, Dollar Heads for Sixth Drop in Seven Weeks — 30Y Auction Prices at 2001 Highs, RMP Paused [1][10][25]

1. Policy Narrative

• **[ESCALATED] Chicago Fed President Austan Goolsbee** said he is 'encouraged' by the recent cooling in inflation, but needs to see 'three or four months' of similar data before he is convinced the Fed is returning to its 2% target ^[1]. He called inflation his top concern, described growth and the labor market as 'basically stable,' and supported holding rates steady at the July FOMC meeting ^[2].
• **[NEW] Goolsbee shrugged off July's soft retail sales as 'only one month' of data**, warning that AI-driven productivity gains do not automatically justify lower rates because heavy investment spending could overheat the economy ^[2][3].
• **[ONGOING] Market pricing has shifted**: the probability of a September rate hike is now around 30%, down from much higher levels a month ago, according to China Business Network ^[2]. The weaker-than-expected retail sales number led bond traders to pull back bets on a 2026 Fed rate increase ^[4].

2. Data and Market Read

• **[NEW] July retail sales fell 0.6% m/m** from a prior +0.2%, according to a China Business Network premarket briefing ^[5]; Goolsbee called the weakness a one-month event ^[3].
• **[NEW] Consumer sentiment dropped to 51 in August** from 55.2 in July, the first decline in three months, with one-year inflation expectations rising to 4.3% from 4.2% ^[6][7][8]. Survey director Joanne Hsu said the decline was broad-based, but especially sharp among older, lower-income, and less-educated households ^[7].
• **[ONGOING] Housing and mortgage data**: existing-home sales slipped 1.7% in July to a 4.06 million SAAR but stayed 0.7% above a year ago, with NAR Chief Economist Lawrence Yun calling home sales 'remarkably stable' ^[9]; mortgage applications rose 3.6% in the week ending August 7 ^[10]; mortgage rates ended Friday slightly higher but near four-week lows ^[11].
• **[NEW] Oil prices rallied as US data dented Fed hike chances** ^[12][13].

3. Long End and Funding

• **[NEW] The 30-year Treasury auction priced at the highest yield since 2001**, showing investors' demand for greater compensation to finance the nation's growing deficit ^[14]. A Jin10 market commentary warns that the Fed not hiking immediately does not mean long-term rates will automatically fall ^[15].
• **[NEW] The New York Fed unexpectedly paused reserve management purchases (RMP)** for the period through September 14, cutting the monthly purchase amount to zero for the first time since the program began in December 2025, while still planning roughly $17 billion in reinvestment purchases ^[16]. Bank of America, Wells Fargo, and TD Securities expect the pause to last at least through October; TD sees it extending to mid-November ^[16]. Wall Street strategists read the move as a sign that funding conditions are looser than expected ^[16].
• **[ONGOING] The Fed published weekly H.8 bank balance-sheet data** and its next-week calendar, with FOMC minutes flagged as the centerpiece ^[17][18][19].

4. Contrarian Signals and Next Week

• **[NEW] Consumers see faster inflation (4.3% one-year expectations) even as markets trim hike bets** ^[6][7][8]; this tension is heightened by the University of Michigan survey showing short- and long-run outlooks both deteriorated ^[6][7].
• **[NEW] A US trade court ruled the administration can suspend de minimis exemptions** on imports under $800, a measure that has already collected over $1 billion in tariffs ^[20].
• **[ONGOING] The market's September odds are a single-source figure** of ~30% from China Business Network ^[2]; the 30-year auction and RMP pause are from Bloomberg and Wall Street Sights, respectively ^[16][14]. Contradiction: Goolsbee wants more evidence ^[2][1] while markets have already repriced lower ^[2].
• **Next week's FOMC minutes are the focal point** ^[18]; one market analysis cautions that retail sales only matter when the economy's health is an open question ^[21].