Yields Rise As Inflation Optimism Wanes

Malaya Business Insight


NEW YORK- US  Treasury yields rebounded from a brief decline after economic data showed a slowing rise in inflation, a day ahead of the Federal Reserve’s next interest rate decision.

The consumer price index (CPI) showed an annual increase in prices of 4 percent in May, slowing from a 4.9 percent reading in April. On a monthly basis, CPI increased 0.1 percent, just shy of the 0.2 percent increase expected by economists polled by Reuters.

Traders firmed up expectations the Fed will keep rates steady at the conclusion of its policy meeting on Wednesday and keep the benchmark rate at 5.0 percent-5.25 percent.

Expectations for the Fed to hold rates are now at 95.3 percent, up from 79.1 percent a day ago, according to CME’s FedWatch Tool, but expectations for a 25 basis point hike at the July meeting are at 63.1 percent.

“Not only should the Fed skip tomorrow’s hike, they should just skip the entire meeting. The data ever so slightly tilts things towards this not just being a skip, but a full-blown hold,” said Brian Jacobsen, Chief Economist at Annex Wealth Management in Elm Grove, Wisconsin.

But the early fall in yields proved to be temporary ahead of the Fed’s policy announcement and another reading on inflation, the producer price index for May.

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