Fed Updates Move Markets

Busy session and another rates rally. Continued developments in Israel saw swap rates and UST yields (generally) open and close lower, though the short end of the curve rose minimally on the day. Fed Minutes released today also contributed to the move, as all members agreed that the Fed could “proceed carefully” with future hike decisions. On the other hand, September’s elevated PPI forced rates higher from their intraday lows, though the long end of the curve still fell as much as ~14bps.

September PPI exceeds expectations. The PPI (Producer Price Index) continued to rise and exceeded expectations across most measures. Higher oil prices were a key driver, explaining over 40% of the monthly increase, observable when comparing the more muted climb in core-PPI measures excluding energy vs. headline. Rates climbed immediately after the release, but markets largely shrugged off the results to close out the day, instead focusing on Fedspeak and September FOMC meeting minutes.

CPI tomorrow. September CPI could extend the robust inflation narrative that today’s PPI exemplified, though levels are largely expected to decline from August. Headline MoM and YoY CPI are expected to decelerate despite concerns over rising energy costs, while core YoY is predicted to drop 0.2% to 4.1%. Core MoM CPI is the lone category that is expected to remain flat (at 0.3%), a potential concern given that the core output will likely be under larger scrutiny from the Fed.