Daily Market Color

Treasury Yields Continue Higher Despite Soft Inflation

Inflation Remains Tepid… The Commerce Department’s report on personal income and consumer spending for August headlined the economic data released today.  Detailed in the report, consumer spending and wages grew at a modest pace last month in the US, as expected, while inflation growth edged lower.  Consumer spending rose 0.1% in August (+0.3% prior month), and personal income grew at a 0.2% pace (+0.3% in July), both figures impacted by decreased demand as a result of the hurricanes.  Inflationary statistics in the report showed continued softness as the PCE index, the Fed’s preferred measure of inflation, increased just 0.2% in August, yielding a 1.4% annualized rate.  The core PCE index only managed a 0.1% rise MoM and 1.3% YoY – its lowest yearly pace since 2015 as inflation continues to remain below the Fed’s 2% target.



Today’s soft consumer price data did little to alter the 70% probability of a rate hike by the FOMC come December, as comments from Fed Chair Janet Yellen earlier this week pointed towards the inclination to raise rates despite inflation remaining below the target level.  Philadelphia Federal Reserve Bank President Patrick Harker confirmed such a notion when speaking today at a Fintech conference, stating that he still has a December hike “penciled in”.   Treasury yields/swap rates increased 1-5 bps across the curve, bringing the 10-year note yield near 2.33% – more than 20 bps higher that its level at the beginning of September.  US stocks gained on the day, with the S&P 500 and Nasdaq on pace to post new record closes.  In commodities, WTI crude is poised to finish the session near $51.50/barrel after trading near $46.25/barrel at the beginning of September.



Who Wants to be the Next Fed Chair?

Today President Trump announced his intention to select the next chairman of the Federal Reserve within the next two to three weeks.  Trump confirmed that he and Treasury Secretary Steven Mnuchin met with two potential candidates this week – former Fed governor Kevin Warsh and current Fed governor Jerome Powell.  Incumbent chairwoman Janet Yellen, who’s term is set to end in February, is also reported to be in the running.  Overall, the news helped support this week’s rise in Treasury yields, as Warsh is characterized as less dovish than Yellen.

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