Yields nearly flat despite jump in PPI. Treasury yields traded within a 4 bp range today and closed nearly unchanged after markets digested today’s PPI report, which posted the largest rise since 2022. The 2-year yield declined 1bp to 3.98% while the 30-year yield rose 1bp to 5.03%. Fed Funds futures markets now have a rate hike priced in as 40% likely by the end of 2026 and 75% likely by the end of the April 2027 FOMC meeting. Meanwhile, the S&P 500 and NASDAQ climbed 0.58% and 1.20%, respectively, to close at fresh all-time highs as technology stocks soared.
Energy prices push wholesale inflation to highest level since 2022. April PPI rose 6.0% YoY, well above forecasts of a 4.8% increase and March’s revised 4.3% gain, marking the sharpest rise since 2022. Core PPI, which excludes food and energy, increased 5.2% YoY, also exceeding estimates of 4.3% and the prior period’s 4.0%. On a monthly basis, headline PPI climbed 1.4%, again the largest increase since 2022, while core PPI rose 1.0% MoM. Carl Weinberg, chief economist at High Frequency Economics, said, “This report will set off alarm bells at the Fed,” adding it “suggest[s] that energy price increases are indeed ‘bleeding’ into core prices at the producer level.” The data is particularly concerning since some PPI components feed into PCE data, the central bank’s preferred inflation gauge.
Warsh confirmed as Fed chair in narrow vote. The Senate voted 54-45 today to confirm Kevin Warsh as the next Fed chair, the narrowest margin ever for a Fed chair confirmation vote. John Fetterman (D-PA) was the only Senator that crossed party lines to vote in favor of Warsh. Bipartisan support used to be the standard for votes on Fed officials, with Janet Yellen’s 56-26 vote in 2014 being the second most divided vote. Warsh previously served as an economic advisor in Trump’s first administration and was a contender for the Fed chair role in 2017, though current Fed Chair Jerome Powell was ultimately selected. Powell’s term ends this Friday, and he will continue serving as a Fed governor.