Yields fall as PPI comes in soft. Treasury yields declined across the curve following cool PPI data this morning, further easing rate hike expectations after yesterday’s CPI print. The 2-year yield closed 6 bps lower at 4.13%, while the 10-year yield closed 4 bps lower at 4.55%. Meanwhile, equities continued yesterday’s gains, with the S&P 500 and NASDAQ closing 0.38% and 0.62% higher, respectively, though chipmakers slid today.
PPI drops for the first time in ten months. Headline PPI rose 5.5% YoY in June, a steep deceleration from May’s revised 6.0% increase, and below expectations of 6.2%. The decline was led by a 12% drop in gas prices, which accounted for two-thirds of the fall. On a monthly basis, headline PPI fell 0.3%, marking the first decline in ten months. Core PPI, which excludes energy and food, also fell in June, increasing 4.7% YoY, down from the prior month’s 4.9% and estimates of 5.1%. Following yesterday’s CPI print, it remains uncertain whether cooling inflation trends will continue as conflict in the Middle East re-escalates. Fed Chair Warsh warned yesterday that “one data point” does not signal “mission accomplished.”
Fed’s Cook still views inflation as top priority. Fed Governor Lisa Cook today said that she views inflation risks as outweighing labor market risks in the current environment, stating, “I am fully committed to reach our inflation target, and this commitment is unwavering.” Cook noted that, despite cooler-than-anticipated CPI and PPI data this week, inflation remains above the Fed’s 2% target level. Some of her concerns have been alleviated by medium and long-term inflation expectations largely appearing to fall in line, though she reiterated that the Fed must remain diligent given the potential that “the high inflation we have seen boosts inflation going forward.”