Wholesale inflation unexpectedly went down. Markets are confident in the Fed rate cut
Following the Bureau of Labor Statistics report, U.S. stock and Treasury bond futures rose and yields on two-year securities fell to 3.52%
Wholesale price inflation in the U.S. in August unexpectedly declined for the first time in four months, strengthening the case for interest rate cuts by the Federal Reserve, Bloomberg writes.
Details
According to a report released by the Bureau of Labor Statistics, the Producer Price Index (PPI) fell 0.1% from the previous month. At the same time, the data for July were revised downward. In annual terms, the index rose by 2.6%.
After the publication of the data, US stock futures rose. At the same time, yields on US Treasury bonds declined. The yield on two-year securities, the most sensitive to changes in Fed policy, fell by four basis points to 3.52%. The rate on benchmark ten-year bonds fell by two points to 4.07%.
Context
The report shows that companies refrained from raising prices sharply in August despite rising costs due to President Donald Trump's duties. Although the decline followed a significant increase in July, many firms feared that a strong price increase could scare away customers amid continued economic uncertainty.
Prices for goods excluding food and energy rose by 0.3%. The cost of services fell by 0.2%. Within this segment, wholesalers' and retailers' margins fell by 1.7%, the largest drop since 2009. The figure has fluctuated since the start of the year, reflecting uncertainty over the impact of trade policy on prices and demand.
The extent to which companies pass on the costs from duties to buyers is one of the key factors that will determine where rates go this year. The Fed generally believes import duties will push inflation upward at least through the end of 2025, but it remains to be seen whether this will be a one-time spike or a long-term trend.
Traders kept bets on the Fed rate cut, fully laying in prices for a 0.25 p.p. cut at the regulator's meeting next week, Bloomberg specifies. Now the attention shifts to the data on consumer inflation (CPI), which will be published on Thursday and will be of greater importance for the central bank.
"This makes a 25 basis point rate cut next week virtually guaranteed," said Andrew Brenner, head of international debt markets at NatAlliance Securities. - We don't expect a 50-basis-point cut unless CPI unexpectedly comes in well below forecasts."
This article was AI-translated and verified by a human editor
