Fed Rate Hike Odds Surge Amid Inflation Fears and Treasury Market Turmoil
Treasury Secretary Scott Bessent issued a challenge to the bond market in Dallas, saying 'I am the house now. Bet against me if you want.' The market took him up on it, and yields rose despite the Treasury's $6 billion buying limit.
The Consumer Price Index (CPI) report for August showed inflation at 3.4%, unchanged from July but still above the Federal Reserve's 2% target. Core inflation, which strips out food and energy prices, rose 0.3% instead of the expected 0.2%.
The damage was concentrated in four energy-linked categories, running four to fifteen times the Fed's target. The report sparked a market reaction, with odds of a rate hike at next week's Fed meeting jumping from 68% to 82%, briefly touching 90%.
The Treasury's bond buyback program aimed to quell a market 'fever', but yields rose anyway. The 10-year yield climbed three quarters of a percentage point this year, reaching 4.99%. Gold prices rebounded, climbing 1.6% to $4,385.14.