1 of 2 | U.S. Treasury yields ticked lower Tuesday after a surprise inflation report for October showed inflation falling faster than expected, signaling that the market believes the U.S. Federal Reserve's interest rate tightening cycle is likely to be at an end. File photo by John Angelillo/UPI |
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Nov. 14 (UPI) -- U.S. inflation bucked market expectations by falling to 3.2% in the 12 months to October, reversing a rise of 0.4% in September, Consumer Price Index data from the Bureau of Labor Statistics out Tuesday show.
However, much of the fall from September's 3.7% rate is likely to have been due to gasoline-driven falls in energy prices, the bureau said in a news release. Food prices slowed at a slightly less brisk pace with an inflation rate of 3.3%, down from 3.7% the previous month.
Core inflation -- which strips out the prices of volatile items such as food and energy -- fell to 4%, its lowest level since September 2021. The market had only expected CPI to slow to 3.3% and core inflation remained unchanged at 4.1%.
President Joe Biden on Tuesday said the results showed "more progress bringing down inflation while maintaining one of the strongest job markets in history."
"I'm working to get results for the American people and it's happening -- and I'm not going to let up for one second," Biden said.
Treasury yields, which were falling early Tuesday prior to the release of the inflation report, fell still further with 30-year treasury yield down 14 basis points at 4.63% as the market responded to the likelihood the Federal Reserve's rate tightening cycle is at an end. The 10-year was down 18 basis points at 4.45%.
When the yields on long-dated maturity treasuries fall toward those of shorter maturities it is typically a signal investors are betting against the need for further interest rate hikes.
Stubborn inflation numbers could have thrown hopes the Fed policymakers will stay their hand when they next meet Dec. 15.
Markets will be keenly scrutinizing Fed officials' post-report comments for clues beginning with Richmond Fed President Thomas Barkin who is scheduled to give a briefing on the outlook for the U.S. economy immediately after the CPI data is published.
Fed Vice Chair for Supervision Michael Barr is due to testify to a Senate panel while Chicago Fed President Austan Goolsbee will talk about the economic and policy outlook at lunchtime.
The Fed opted to leave rates unchanged at its Nov. 1 meeting but did not rule out future hikes with Chairman Jerome Powell citing the Fed's 2% inflation target.
Ahead of the release of the CPI report, markets were pricing in an 86% likelihood that the Fed will leave interest rates unchanged at 5.25% to 5.50%, according to the CME FedWatch tool.
However, the market believes there is a 25% chance the Federal Open Market Committee will hike 25 basis points to a 5.50% to 5.75% range at its meeting at the end of January.
