Yields surge on inflation concerns. Treasury yields climbed today, driven by an oil rally and strong business activity data which stirred market concerns about potential inflationary impacts. Hawkish comments from FOMC voter Barr also added to rate hike expectations. Futures markets now have three rate hikes fully priced in by the April FOMC meeting, compared to two yesterday. The 2-year yield closed 14 bps higher at 4.90%, and the 10-year yield closed 15 bps higher at 5.11%. Meanwhile, equities slid as inflation worries took focus, with the S&P 500 and NASDAQ closing 0.75% and 1.13% lower, respectively.
Composite PMI reaches 5-year high. September PMI data this morning showed a composite reading of 58.4, beating expectations of 55.3 and up from 56.0 in the prior month. The reading marks the fourth consecutive month of expansion and the sharpest rise since July 2021, driven primarily by the services sector, which rose to 58.7, exceeding forecasts of 55.8 and the prior month’s 56.5. Employment increased at the fastest rate in more than four years, while input prices climbed at the fastest pace since 2022, mainly due to fuel and transport costs. Chris Williamson, chief business economist at S&P Global, commented that, “the rise in oil prices seen during the month…will add further to the upward pressure on selling prices and inflation in the coming months.”
Barr calls for additional hikes to bring inflation to target. Fed Governor Barr spoke today in favor of additional rate hikes as inflation remains well above its 2% target. Barr said that in his “base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.” Barr also described the labor market as solid and the economy as strong, comments that come on the same day as data showing that US business activity in September grew at its fastest pace in five years. Barr added that the Fed’s quarter-point hike last week was “an adjustment in the right direction,” and his statements echo those of other Fed officials in recent weeks who have similarly emphasized concern over persistently elevated inflation.