News

Bond Yields Rise Ahead of PCE Data

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Andrew R. Michaud

• February 29, 2024

Bond yields increased early Thursday as traders awaited the release of the personal consumption expenditure price index data for January, which is expected to indicate a rise in inflation.

PCE Data Focus

The main highlight for investors today is the PCE data for January, set for release at 8:30 a.m. Eastern Time. Economists predict a slight slowdown in annual headline PCE growth from 2.6% in December to 2.4% last month. The annual core reading, excluding volatile items like food and energy, is anticipated to remain steady at 2.8%.

Forecasted Changes

Expectations suggest that the month-on-month headline rate will increase from 0.2% to 0.3%, with the core rate rising from 0.2% in December to 0.4% in January.

Impact on Federal Reserve

The PCE report serves as the Federal Reserve's preferred inflation measure. A month-on-month rise in line with expectations could solidify the belief that the central bank will hold off on cutting borrowing costs until summer.

Market Predictions

Presently, there is a 97.5% likelihood that the Fed will maintain interest rates within the range of 5.25% to 5.50% following its upcoming meeting on March 20th, according to the CME FedWatch tool. The probability of a rate cut of at least 25 basis points by the May meeting has decreased to 20% from 88.3% a month ago, while the likelihood of a rate cut in June stands at 61.7%.

Economic Data and Fed Commentary

Thursday will also see the release of additional U.S. economic data along with remarks from several Fed officials.

Key Economic Indicators for the Day

At 8:30 a.m., the weekly initial jobless claims report will be released. This will be followed by the February Chicago Business Barometer at 9:45 a.m. and January pending home sales at 10 a.m.

Scheduled Speeches by Federal Reserve Officials

• 10:15 a.m. - Fed Gov. Christopher Waller
• 10:50 a.m. - Atlanta Fed President Raphael Bostic
• 11:00 a.m. - Chicago Fed President Austan Goolsbee
• 1:15 p.m. and 3:30 p.m. - Cleveland Fed President Loretta Mester

Market Movements in Japan

In Japan, the 10-year government bond yield BX:TMBMKJP-10Y rose by 1.6 basis points to 0.713% after Bank of Japan board member Hajime Takata indicated that the time for exiting the negative interest rate policy was approaching.

Analyst Insights

S&P Global Ratings Chief U.S. Economist, Satyam Panday, shared the following thoughts:

"Unexpectedly warmer CPI and PPI monthly inflation figures for January have led to Fed policymakers emphasizing that the FOMC is not in a rush to start cutting rates. In the past three weeks, expectations for any rate cut in March have significantly decreased.

"While monetary policymakers are looking for more data to confirm sustained inflation at 2%, we believe that January's numbers are just a temporary disturbance. Disinflation is likely to persist through the first half of 2024, pushing the core PCE rate below 2.5% by mid-year."