I know it’s easy to forget that there’s other market moving news on the horizon (besides what the next day will bring in the Russian invasion of Ukraine) but tomorrow, Friday, February 25, the government will report the Personal Consumption Expenditures (PCE) price index, the inflation index that the Federal Reserve uses, for January. That measure is projected to show inflation rising at an annual rate of 6% in January, according to economists surveyed by Bloomberg. The core rate, which excludes food and fuels, is forecast to climb to an annualized 5.2%.
The PCE index was up 5.8% year over year in December. The core rate was up 4.9% year over year in December.
Bond traders are just coming to a belief that the Fed won’t raise interest rates by 50 basis points at its March 16 meeting with odds falling to just 6% in favor of the 50 point move. The market remains convinced (94% odds) that the Fed will raise rates in March, but only by 25 basis points.
A PCE number significantly above current projections might swing the pendulum back toward a 50 basis point increase in interest rates.
On Thursday at the close, the yield on the 10-year Treasury had retreated to 1.97%, down 2 basis points on the day, as investors moved to the safety (comparatively) of Treasuries on the Russian invasion of Ukraine.
