Market Update: Treasury Yields Retreat as Inflation Concerns Ease
Cooler-Than-Expected Inflation Data Boosts Bond Prices
The 10-year Treasury yield fell 7 basis points to 4.50% on Friday, reversing some of the previous day’s gains, as a key inflation gauge showed prices rising at a slower pace than anticipated. This development, combined with reassuring remarks from Chicago Fed President Austan Goolsbee, lifted bond prices and eased investor concerns.
Inflation Rate Remains Above Fed’s Target
The November personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, increased just 0.1% from October, indicating a 2.4% annual inflation rate. While this is still above the Fed’s 2% goal, it is lower than the 2.5% estimate from economists surveyed by Dow Jones.
Fed Official Offers Reassurance
Later in the day, Chicago Federal Reserve President Goolsbee calmed investors by stating that inflation continues to come under control. He emphasized that the recent data suggests a return to the Fed’s 2% target, rather than a change in the inflation trajectory.
Treasury Yields Surge on Fed Policy
Earlier in the week, Treasury yields surged after Fed policymakers increased their inflation forecast for the coming year and signaled only two potential rate cuts in 2025, down from four potential cuts previously expected. Fed Chair Jerome Powell flagged that the 12-month inflation rate will top the central bank’s 2% goal, but noted that the monthly move will be “much lower” than in previous months.
Government Shutdown Looms
Meanwhile, the U.S. government is on the brink of a shutdown as dozens of Republicans voted against a spending bill backed by President-elect Trump. Without an agreement, a partial government shutdown is expected to begin Friday night.
Market Impact
The retreat in Treasury yields and the easing of inflation concerns have significant implications for the market. As bond prices rise, investors may seek out other investment opportunities, such as stocks or commodities. Additionally, the potential government shutdown could lead to increased market volatility and uncertainty.
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