Treasury yields fall after PCE inflation report shows surprise cooling

By Joy Wiltermuth and Steve Goldstein

Bond yields fell Friday after the Federal Reserve's preferred inflation gauge came in cooler than anticipated

Bond yields fell Friday as traders digested PCE inflation data for August that came in cooler than Wall Street anticipated.

The Federal Reserve's preferred gauge pegged inflation at 2.2% on a yearly basis, a low last seen 31/2 years ago.

What's happening

The yield on the 2-year Treasury BX:TMUBMUSD02Y was 3.60%, down 2 basis points. The yield on the 10-year Treasury BX:TMUBMUSD10Y was 3.77%, down 2 basis points.The yield on the 30-year Treasury BX:TMUBMUSD30Y was 4.10%, down 2 basis points.

What's driving markets

The August personal consumption expenditure price index showed a 0.1% monthly rise, but a modest 0.1% gain for the core measure that excludes food and energy. Wall Street was expecting a 0.2% rise for the core reading.

"The latest PCE inflation data shows that inflation continues to moderate, which allows the Fed to focus on risks to employment and continue easing rates," Sonu Varghese, global macro strategist at Carson Group, said in emailed comments.

The odds of the Fed cutting rates by another 50 basis points in November were moving up modestly Friday morning, with traders putting the chances at 54.1%, versus 45.9% for an ordinary 25 basis point cut, according to the CME FedWatch tool. A day ago the odds were roughly even.

On Thursday, there was data showing an unexpectedly low weekly jobless benefit claims reading, as an auction of 7-year notes met solid demand.

But on Friday, the focus was squarely on inflation and spending.

"The PCE number is very close to the Fed target. Mission accomplished," said Scott Helfstein, Head of Investment Strategy at Global X, in emailed comments. "Inflation continues to slow, but both personal income and spending came in a little below expectations. That is likely to stoke concerns about a slowing economy."

-Joy Wiltermuth -Steve Goldstein

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09-27-24 0935ET

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