Yields climb heading into Fed week. Treasury yields whipsawed in the immediate aftermath of today’s largely in-line CPI print, with yields jumping as much as 8 bps before edging lower. The 2-year yield ultimately closed 4 bps higher at 4.63% (up 26 bps on the week) and the 10-year yield closed 1bp higher at 4.97% (up 19 bps on the week).Futures markets now have a rate hike at next week’s FOMC meeting nearly 90% priced in, compared to 73% yesterday. Equities rallied in a reversal of the recent selloff, with the S&P 500 and NASDAQ closing 0.86% and 0.96% higher, respectively.
CPI data raises odds of rate hike. CPI data released today met expectations but showed inflation remained elevated in August. Headline inflation rose 0.4% MoM and 3.4% YoY, both in line with expectations, driven mainly by a 3.9% increase in energy prices. Core CPI, which excludes food and energy, increased 0.3% MoM, slightly higher than estimates of 0.2%, and 2.4% YoY. Airline fares and communication prices drove the gain. Following the report, Chief economist at KPMG, Diane Swonk, shared her opinion, “Now the question is not whether they hike, it’s how much they need to hike to contain this inflation.”
