August Inflation Data Puts Fed Rate Hike Odds Above 80%

US inflation picked up in August, as per the latest data from the Bureau of Labor Statistics. Headline prices rose 0.4% month-over-month and core inflation (excluding food and energy) increased by 0.3%, exceeding expectations. The annual inflation rate remains at 3.4%, while the core rate cooled to 2.4% from 2.5% in July.

Goldman Sachs Asset Management's Alexandra Wilson-Elizondo described the decision as a 'jump ball', noting that the inflation survey period likely missed some of the latest energy and commodity moves. The market has taken this data seriously, with rate-hike odds for next week rising to 82% from 68%. Treasury yields have also been impacted, with the two-year yield increasing to 4.581% and the 10-year slipping to 4.91%.

The 'twist' in the Treasury curve is a classic sign of a market reprice, where shorter-term yields track expectations for Fed rate decisions, while longer-term yields can fall if investors think tighter policy will cool growth and inflation later on. This has implications beyond bonds, as lower long-term yields can support stocks with long-duration cash flows.