U.S. Treasuries exhibit a slight descent
The Commerce Department's latest report shows that U.S. consumer prices increased in line with estimates in July, as the annual rate of growth by the core PCE price index ticked up to 2.9% from 2.8% in June. The slight acceleration in the core PCE price index, which measures inflation excluding food and energy prices, also matched estimates, rising by 0.3% for the month.
The PCE price index, a key measure of inflation tracked by the Federal Reserve, rose by 0.2% in July. This increase, combined with the acceleration in the core PCE price index, suggests that inflationary pressures may be building in the economy.
Meanwhile, the fate of Federal Reserve Governor Lisa Cook remains uncertain. Cook, who has been embroiled in a resignation dispute with U.S. President Donald Trump, refused to resign despite Trump's order to dismiss her, citing that Trump has no legal authority to remove her without cause. A hearing on Cook's request to temporarily block Trump's attempt to remove her from her position took place in Washington, D.C., but no ruling was issued, leaving Cook's fate uncertain.
The hearing's outcome may have implications for the Federal Reserve's monetary policy. According to the CME Group's FedWatch toll, there is an 87.1% chance that the Fed will lower interest rates by a quarter point at its next monetary policy meeting. The Federal Reserve may lower interest rates next month, as the data suggests that inflationary pressures are building and the economy may need additional stimulus to maintain growth.
Bond prices moved lower early in the session and remained in negative territory throughout the day, as investors digested the inflation data and the uncertainty surrounding Cook's position at the Fed. The yield on the benchmark ten-year note rose by 2.0 basis points to 4.227%.
Next week's trading may be impacted by several factors, including reports on manufacturing and service sector activity, the closely watched monthly jobs report, and the potential reaction to Cook's ruling. The long Labor Day weekend may also impact trading next week, as markets will be closed on Monday.
In conclusion, the U.S. consumer prices increased in line with estimates in July, as the core PCE price index accelerated slightly. The fate of Federal Reserve Governor Lisa Cook remains uncertain, and the hearing on her request did not result in a ruling. The Federal Reserve may lower interest rates next month, as the data suggests that inflationary pressures are building and the economy may need additional stimulus to maintain growth.
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