US Rate Outlook Shifts Amid Rising Inflation Pressures
Markets have repriced the US rates outlook following Fed Chair Warsh's Jackson Hole speech last Friday, increasingly embracing a 'high-for-longer' narrative amid persistent inflation pressures and renewed supply-side shocks.
The probability of a September Fed rate hike has now risen to 66%, with around 1.5 hikes expected by end-2026.
US Treasury yields have surged across the curve, with the 2-year yield up 16.8 basis points, the 10-year yield up 12.2 basis points, and the 30-year yield up 8.0 basis points since Jackson Hole on August 28.
The repricing is occurring against an increasingly challenging inflation backdrop, exacerbated by a surge in Brent crude to almost $95 per barrel after renewed strikes between the US and Iran.
Inflation data continue to validate these concerns, with South Korea's headline inflation accelerating to 3.1% year-over-year in August from 2.8% in July, and core inflation jumping sharply to 3.4% year-over-year from 2.6%.