(Bloomberg) -- Traders now have no doubt: the Federal Reserve will start raising interest rates once again next week.

The implied interest rate on the swap contract linked to the Fed’s July 26 rate decision rose to 5.33% — a quarter point higher than the 5.08% effective level of the policy rate most days since May 4.

Treasury yields across maturities were down between three to seven basis points, with the policy-sensitive two-year rate hovering around 4.7%. Yields slumped after data showed US retail sales rose by less than forecast, before quickly moving away from session lows as the complete report along with revisions showed still robust consumer spending.

“The market’s perception, probably rightly so, at this point is that a July rate hike is a forgone conclusion,” Guy LeBas, chief fixed income strategist for Janney Montgomery Scott said by phone. Fed Chair Jerome Powell “would in order to negate a rate hike now in the market have to come out and say ‘we are not going to do it guys’.”

Wagers on where the US overnight benchmark rate will peak have been dialed back as signs of slowing inflation mount. But several policymakers in recent days have come out with hawkish commentary in the run-up to their next meeting. 

After July, more hikes look unlikely given inflation has broadly been decelerating, LeBas said. 

While the Fed left rates unchanged at the last meeting in June — halting a run of 10 increases — policymakers’ quarterly forecasts showed a median expectation for two more quarter-point increases this year. 

San Francisco Fed President Mary Daly last week said it’s too soon for officials to say they’ve done enough to restore price stability. Fed Governor Christopher Waller then noted he expects two more rate increases will be needed this year to bring inflation down to target.

Retail sales data overall “is constructive for second quarter real gross domestic product estimates and the US rates market is trading it accordingly,” Ian Lyngen, head of rate strategy at BMO Capital Markets, wrote. “That said, there is nothing within the details of the report that would prevent Powell from delivering a dovish hike next week.”

--With assistance from Edward Bolingbroke and Alex Nicholson.

(Adds strategist comments in fourth and last paragraph.)

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