The 10-year Treasury yield retreated on Friday as a key inflation gauge showed cooler-than-expected price pressures. Mid-morning remarks by Chicago Fed President Austan Goolsbee, confirming that rates could still decline next year despite the central bank’s cautious stance, also helped lift bond prices.
The yield on the 10-year Treasury fell 7 basis points to 4.50% after topping 4.57% the previous day. The 2-year Treasury yield dipped 3 basis points to 4.29%.The benchmark 10-year yield is still about 0.10% higher than the 4.40% level where it ended last week.
One basis point is equal to 0.01% and yields and prices move in opposite directions.
The November personal consumption expenditures price index, the Fed’s preferred measure of inflation, increased just 0.1% from October. The gauge indicated a 2.4% inflation rate on an annual basis, still ahead of the Fed’s 2% goal but lower than the 2.5% estimate from economists surveyed by Dow Jones. The monthly reading also was 0.1 percentage point below the forecast.
Later in the day, Chicago Federal Reserve President Goolsbee reassured investors by telling CNBC’s Steve Liesman that inflation continues to come under control.
“We’re still on path to get to 2% and at least for this new month you don’t want to make too much out of any one month, but I’m hopeful that this suggests that the couple of months of firming were more of a bump than a change in path,” Goolsbee said.
Treasury yields surged on Wednesday after Fed policymakers increased their inflation forecast for the coming year and pointed to only two potential rate cuts in 2025, down from four potential cuts that had been signaled in September.
Fed Chair Jerome Powell flagged at a press conference after the central bank meeting that the 12-month inflation rate will top the central bank’s 2% goal, estimating 2.5% for headline inflation and 2.8% for the core level, which excludes food and energy prices. Powell nevertheless said the monthly move will be “much lower” than in previous months.
The U.S. government is currently on the brink of a shutdown as dozens of Republicans voted against a spending bill backed by President-elect Trump. The House Republican deal would have funded the government for three months and suspended the debt ceiling for two years.
Without an agreement, a partial government shutdown is expected to begin Friday night.
