Yields fall on tame PPI print. Treasury yields declined in the aftermath of today’s July PPI report, which showed easing price pressures and further alleviated market expectations of a rate hike following the cool CPI report earlier this week. Futures markets are now pricing in a 35% chance of a rate hike at the September FOMC meeting, compared to 72% at the end of July. The 2-year yield closed 6 bps lower at 4.14%, and the 10-year yield closed 5 bps lower at 4.64%. Meanwhile, equities continued rising, with the S&P 500 and NASDAQ closing 0.65% and 0.81% higher, respectively.
July PPI cools, reinforcing Wednesday’s tame CPI print. Wholesale inflation rose 4.7% YoY in July, a sharp deceleration from June’s 5.5% and slightly below expectations of 4.9%. Headline PPI was unchanged on a monthly basis. The slowdown was driven by a 3.1% decline in energy prices and the largest drop in food prices since the start of the year. Transportation and warehousing costs also declined, highlighting a diminished impact from fuel costs. Meanwhile, core PPI, which excludes food and energy, climbed 4.2% YoY and 0.2% MoM. Today’s report follows Wednesday’s CPI print, which also showed easing price pressures despite the ongoing conflict in the Middle East.
Fed’s Barkin, Hammack speak on potential policy path. Richmond Fed President Tom Barkin spoke today in support of leaving policy rates unchanged, saying, “Much of today’s elevated inflation has come from shocks, which should pass,” referencing energy price shocks from the Iran war. Barkin did acknowledge the potential need to hike rates due to other inflationary factors, such as artificial intelligence expenditure. Meanwhile, Cleveland Fed President Beth Hammack shared hesitation about recent softer inflation data, saying, “I love to see that those numbers are coming in lower – that’s a good thing – but I don’t have confidence that we’re going to continue to see that…” Barkin is a non-voter at this year’s FOMC, and Hammack recently dissented at the July FOMC meeting in favor of a rate hike.