Wholesale Inflation Declines for the First Time Since April

Surprise drop in PPI pushes yields lower. UST yields traded in a tight range this morning until August PPI data came in below expectations and July’s prints saw a downward revision. In the aftermath, yields gradually declined as the cool inflation report supports the Fed resuming rate cuts. In the last few hours of the session, the move largely reversed as attention shifted to tomorrow’s CPI prints, with the 2-year yield ultimately closing 1bp lower at 3.54% and the 10-year yield closing 4 bps lower at 4.05%. Meanwhile, the S&P 500 hit a new intraday high, driven by shares of Oracle Corporation rising by 36% on a strong AI cloud growth outlook.

Inflation data lands softer than expected. The producer price index fell 0.1% in August, below expectations of a 0.3% rise and the prior month’s 0.7%, which was revised downward from 0.9% today. Core PPI, which excludes volatile food and energy sectors, also declined 0.1% MoM. On an annual basis, headline and core PPI rose 2.6% and 2.8%, respectively, but came in well below estimates of 3.3% and 3.5%. Today’s release marked the first inflationary decline in four months, signaling that, despite higher tariff costs, firms have resisted outsized price increases as they worry markups will drive away consumers amid lingering economic uncertainty. Markets now look to tomorrow’s CPI data for further clarity on inflationary pressures, but today’s PPI print bolsters the case for a Fed rate cut at next week’s FOMC meeting. As labor market concerns grow, the market is even pricing in the possibility of a 50 bp cut.

Judge blocks President Trump’s attempt to remove Fed Governor Cook. On Tuesday evening, US District Judge Jia Cobb temporarily blocked President Donald Trump’s order to remove Fed Governor Lisa Cook. Cobb concluded that Cook’s mortgage fraud allegations were not sufficient “cause” for her to be fired under the Federal Reserve Act, and that her dismissal violated constitutional due process rights. The ruling will allow Cook to continue serving as a Fed Governor, meaning she will attend next week’s FOMC meeting. The Department of Justice is likely to appeal the ruling, with White House spokesperson Kush Desai saying, “This ruling will not be the last say on the matter.”