Yields edge lower despite heightened US-Iran tensions. Treasury yields declined today despite tensions in the Middle East remaining high and energy prices elevated. The 2-year yield closed 2 bps lower at 4.80%, and the 10-year yield closed 3 bps lower at 5.28%. Meanwhile, equities rallied today on optimistic sentiment heading into earnings season, with the S&P 500 and NASDAQ closing 0.58% and 0.45% higher, respectively, and each at new all-time highs.
Fed’s Schmid shares hawkish view ahead of FOMC minutes. Kansas City Fed President Jeffrey Schmid shared hawkish views on inflation today, citing both AI and energy prices as reasons for elevated price pressures. Schmid stated, “From my standpoint, Fed credibility is at stake if we don’t continue to act…to bring inflation down to that 2%.” Headline PCE rose 3.4% YoY in August, well above the Fed’s 2% target. Schmid added, “Now that inflation has kind of trended back up, the one tool we have is to increase the policy rate, and that’s the short-term rate.” The Fed will release the minutes from its September meeting tomorrow.
US imports hit record high as trade deficit grows. The US trade deficit grew 13.7% in August to $105.6 billion, marking the largest shortfall since early last year. The gap was driven by a 4.3% MoM increase in imports, slightly above estimates of a 4.2% rise. Monthly trade figures, which are not inflation-adjusted, have been choppy over the past few years due to tariffs and rising crude oil prices in recent months. The August increase was driven largely by capital goods imports, including computers and semiconductors, which jumped $6.2 billion from the prior month as business AI investment remains robust. Semiconductor imports alone rose by a record $2.4 billion MoM. US exports also rose, increasing 1.4% MoM, above forecasts of 1.2% growth and July’s 2.1% contraction.
