U.S. Treasury Market Focuses on Sept. 14 CPI as Inflation Is Expected to Accelerate

Also watching remarks by Fed Chair Warsh
Gauging the pace of rate hikes

The U.S. Treasury market is focused on the September Consumer Price Index (CPI), due out this week, and remarks by Federal Reserve (Fed) Chair Kevin Warsh. Concerns are growing that Treasury yields, which surged to their highest level in 24 years after the Fed raised its benchmark interest rate last month, could rise again depending on the inflation data.

According to Bloomberg News on the 11th (local time), Treasury yields surged after the Fed unanimously raised its benchmark interest rate by 0.25 percentage points last month, but moved little last week, hovering near their highest level in 24 years. Bloomberg reported that investors were staying on the sidelines as they awaited economic data that could help them gauge the pace of further monetary tightening.

Pressure to sell Treasuries eased somewhat after the U.S. employment report released this month showed a sharp slowdown in job growth. Markets expect the Fed to hold interest rates steady at the Federal Open Market Committee (FOMC) meeting on the 27th and 28th. However, they expect a further 0.25-percentage-point hike in December and two more hikes by the end of 2027.

The key focus is the September CPI, due out on the 14th. A Bloomberg survey of economists found that the September CPI is expected to rise 0.6% from the previous month, exceeding the 0.4% increase in August. The year-over-year increase is also forecast to reach 3.6%.

Core CPI, which excludes volatile food and energy prices, is expected to rise 0.2% from the previous month, slowing from the 0.3% increase in August. However, the year-over-year increase in core CPI is forecast at 2.5%.

Markets believe that if inflation exceeds expectations, the Fed could face pressure to raise interest rates more quickly. This has raised the possibility that the recent easing in Treasury selling could reverse.

Molly Brooks, a U.S. rates strategist at TD Securities, said, "The risks around the CPI release are asymmetric. An inflation reading higher than expected could signal that the Fed needs to accelerate the pace of monetary tightening, while a reading in line with or below expectations would allow the Fed to remain cautious."

Chair Warsh's remarks are also a major focus for the market. He is scheduled to participate in a discussion at the International Monetary Fund's (IMF) annual meeting in Bangkok, Thailand, on the 15th. Other key Fed officials, including Fed Governor Christopher Waller and Beth Hammack, president of the Federal Reserve Bank of Cleveland, are also scheduled to make public remarks this week.

In particular, the Fed will enter its "blackout" period on the 17th, during which officials refrain from public comment on monetary policy ahead of the October FOMC meeting. This week is the last opportunity to hear directly from Fed officials about the direction of monetary policy.

Brooks said, "As this is the last week before the blackout period, remarks by Fed officials after the CPI release should reduce market uncertainty about the outcome of the next meeting."

However, Warsh is not expected to signal a specific path for interest rates. Since taking office, he has favored scaling back forward guidance, or advance policy signals, and is therefore not expected to give a clear indication of when rates might be raised this time either.

This content was produced with the assistance of AI translation services.