The August Consumer Price Index met expectations

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Published Date 9/11/2024

August CPI about as expected; month/month +0.2% unch from July, year/year +2.5% down from 2.6%, excluding food and energy month/month +0.3% increasing from 0.2%, year/year +3.2% unchanged as expected. The initial reaction in the bond market didn’t move from prior to the release at 8:30 am ET, the 10 year note was trading at 3.62% -3 bps before the report, at 9 am at 3.62%. The slight increase in core month/month isn’t a critical deal with the year/year remaining unchanged. As noted yesterday the Fed is increasingly concerned about employment that is slowing quickly based to data in July, all employment reports continue to show signs the job market is not only not growing but contraction. The unemployment rate at 4.2% is now the highest in three years.

It took a moment to digest the release, by 9:15 am the 10 year note yield reversed from 3.62% to 3.68% +3 bps, MBS prices began the session down 7 bps. The increase in month/month core inflation has reduced the chance of the Fed lowering the FF rate to 25 bps from 50.

Prior to the CPI weekly mortgage applications last week improved; the composite +1.4%, purchase apps +1.8% and re-finances +0.9% after declining 0.3% the prior week. The prior week apps increased 1.6% from the previous week.

At 9:30 am the DJIA opened -264, NASDAQ +52, S&P -10. 10 year note 3.68% +3 bps at 9:30 am. FNMA 5.5 30 year coupon at 9:30 am -5 bps from yesterday’s close and +8 bp from 9:30 am yesterday.

At 1 pm Treasury will auction $39B of 10 year notes, yesterday there was strong bidding at the 3 year auction.

How will the FOMC see the fractional month/month core inflation inching higher when it meets Next Wednesday? The Fed is concerned about inflation, but overall inflation is slowing; the Fed is more concerned about all of the recent data over the last two months that the labor market is slowing quickly. We continue to look for the Fed to lower the FF rate by 50 bps at the FOMC meeting.

Source: TBWS

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