U.S. Treasury yields remain largely unchanged as CPI rises to 2.7%

U.S. Treasury yields remained largely unchanged Wednesday as investors embraced the rising consumer price index (CPI) data. The consumer inflation figures are pivotal for investors and could lead to the Federal Reserve cutting interest rates next week.

A Dow Jones survey predicted that the MoM CPI would rise from 0.2% to 0.3% in October. The YoY inflation figures are out as analysts expected and have settled at 2.7% from 2.6%. The Core MoM CPI and the Core YoY CPI have remained the same at 0.3% and 3.3%, respectively, as speculated by economic analysts. 

Consumer Price Index (CPI) data could pave the way for rate cuts next week

BREAKING! US headline #inflation rose to 2.7% in November, matching expectations.
Core inflation was stable at 3.3%, which was also in line with expectations.
This should be enough for the #FederalReserve to cut rates again in December. pic.twitter.com/eLut3iSMtG

— jeroen blokland (@jsblokland) December 11, 2024

The rising inflation data could signal a good chance of a rate cut by the Federal Reserve next week. According to CME Group’s FedWatch tool, traders anticipate an 86% chance that the Fed will cut rates in its next meeting. On December 18th, the Fed will announce the next interest rate decision, share other economic data points, and discuss the current U.S. economic outlook.

The November producer price index (PPI) numbers come a day after the consumer price index. PPI tracks wholesale inflation and is set to be released on Thursday. Market participants anticipate that the MoM PPI numbers will decrease from 0.3% to 0.2% while the YoY PPI figures will increase from 3.1% to 3.3%. 

The U.S. Treasury yields rose on Tuesday. The yield on the 10-year Treasury was up more than 3 basis points to 4.23%, while the 2-year Treasury also rose more than 2 basis points to 4.149%. 

On December 10th, Michael Green, the chief strategist at Simplify Asset Management, told CNBC that the market experienced a weak bond auction, yet it was neither terrible nor great. He cited confusion and uncertainty about today’s CPI numbers as the reason for the weak bond market.

The core CPI numbers track inflation but exclude volatile items like food and energy prices, providing a more stable measure of underlying inflation trends. On the other hand, the standard CPI includes all inflation-tracking items, such as goods and services, reflecting overall price changes across the economy.

MoM Producer Price Index set to increase from 0.2% to 0.3%

The MoM PPI figures are set to increase from 0.2% to 0.3%, while the YoY PPI numbers are expected to increase from 3.1% to 3.3%. On the other hand, the Core MoM PPI figures are set to decrease from 0.3% to 0.2%, while the Core YoY PPI numbers are expected to increase from 3.1% to 3.3%. 

Potential policy changes in the U.S. and Canada could reset market expectations, with investors on edge. As the U.S. prepares for inflation-driven changes, Canada’s employment concerns have projected rate cuts that might further weaken the dollar.

The Fed is currently in a blackout period and is restricted from making public statements before the next Federal Open Market Committee meeting. Therefore, Fed officials will not provide any commentary regarding the central bank’s next move. 

In the November FOMC meeting, the committee reduced the federal funds rate by 25 basis points to 4.50%—4.75%, continuing the interest-rate-cutting cycle that started in September.

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