Inflation, Energy Costs and Treasury Yields Rise Ahead of Fed Rate Decision
By Tom LoBianco | Quincy News Correspondent
Click here for updates on this story
Washington (Quincy News) — Consumer prices rose in August as higher gasoline costs contributed to the largest monthly increase in the Consumer Price Index (CPI) since May, adding new inflation data for Federal Reserve officials ahead of their meeting next week.
The CPI rose 0.4% in August and 3.4% from a year earlier, the Bureau of Labor Statistics reported Friday. The annual rate was unchanged from July. Gasoline prices increased 3.9% during the month and accounted for more than one-third of the overall monthly increase.
Core CPI, which excludes food and energy, rose 0.3% in August after increasing 0.2% in July.
The CPI report followed mixed producer-price data released Thursday. The Producer Price Index (PPI) for final demand increased 0.4% in August after rising 0.1% in July. Producer prices were up 5.4% from a year earlier.
The reports shifted market expectations ahead of the Federal Reserve’s Sept. 15-16 meeting. CME FedWatch showed traders pricing around an 85% probability of a quarter-point rate increase following Friday’s CPI report, up from 72% a day earlier.
Consumer surveys also showed increased concern about inflation in early September. The University of Michigan’s preliminary consumer sentiment index fell to 47.8 from 51.7 in August, while consumers’ one-year inflation expectations increased to 4.6% from 4.0%.
The economic data arrived during a Republican midterm convention in Dallas, where President Donald Trump pledged to provide $5,000 payments to adult U.S. citizens if Republicans retain control of the House and Senate in November.
The proposal has not been accompanied by detailed eligibility, funding or implementation plans. Providing $5,000 to every U.S. adult would cost approximately $1.35 trillion, according to estimates. Such payments would also require congressional authorization.
Treasury yields have also risen this week as investors responded to inflation data, higher energy prices and other factors affecting the bond market.
The Treasury Department expanded its program for buying back older government securities this week. Treasury announced in August that it would increase the maximum size of liquidity-support buybacks in longer-dated securities from $2 billion per operation to at least $4 billion beginning Sept. 9.
For Thursday’s operation involving securities in the 10- to 20-year maturity range, Treasury set a maximum purchase amount of $6 billion. It ultimately accepted about $5.2 billion of securities.
Long-term Treasury yields nevertheless moved higher Thursday. The benchmark 10-year yield rose about 10 basis points to 4.943%, while the 30-year yield climbed to 5.36%. Rising Treasury yields can translate into higher borrowing costs elsewhere in the economy because rates on mortgages, corporate debt and other forms of credit are influenced by Treasury yields.
The Fed will announce its rate decision Wednesday following its two-day meeting.
Please note: This story was provided to CNN Wire by an affiliate and does not contain original CNN reporting. This content carries a strict local market embargo. If you share the same market as the contributor of this article, you may not use it on any platform.