Inflation Surges as Treasury Yields Edge Lower

U.S. Treasury yields slipped Friday as September inflation topped economists’ expectations and Federal Reserve Chairman Kevin Warsh declined to say whether the central bank would raise interest rates. The 10-year yield fell 1 basis point to 5.074%, while the 30-year yield barely moved, ending at 5.422%. The 2-year yield also fell 1 basis point, to 4.731%.

Inflation and Prices

The Bureau of Labor Statistics reported producer prices rose 6.3% annually in September, their biggest increase since 2022. Economists polled by Dow Jones had expected a 5.5% increase. These figures track wholesale prices, but the report doesn’t show how the increase was distributed among businesses, workers, or consumers.

The consumer price index rose 0.6% in September and 3.7% annually, according to figures released Wednesday. Economists had estimated a 0.6% monthly increase and a 3.6% annual rise. Soaring energy prices amid the ongoing U.S.-Iran war drove much of the increase, the article reported.

These measures track prices, not wages or household income. The report offers no figures on worker pay, corporate profits, or how much of the higher energy costs companies or households absorbed. It names no workers, unions, or organized response to the price increases.

Rates and the Federal Reserve

Warsh declined Thursday to say whether the Federal Reserve would raise rates at its next decision, about two weeks away. “I don't prejudge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year,” he said.

Traders put the chance that the Fed would hold rates at 87%, according to the CME FedWatch Tool. That number reflects market expectations, not a Federal Reserve decision. Warsh’s remarks left the October rate outcome open as the next meeting approached.

The report covers the Fed’s possible rate move and traders’ expectations, but says nothing about how a rate increase or hold would affect workers, borrowers, employers, or public spending. It also offers no proposal to address rising prices and no assessment of any such proposal. The debate centers on the central bank’s next decision and the market’s interpretation of it.

Treasury Market Moves

One basis point equals 0.01%. Treasury yields and prices move in opposite directions, so the declines in the 10-year and 2-year yields correspond to price movements in the opposite direction for those securities. The 30-year yield changed little.

The Financial Times page available for the related report carried the headline, “Dollar weakens as Fed chair Kevin Warsh declines to hint at October rate rise,” but included no article text. The report here gives no additional figures on the dollar or explanation of its movement. Its documented measures are September producer and consumer price inflation, Treasury yields, and traders’ rate expectations. No profit figures, wage data, or labor organization appear in the account.