- Interest futures gained after US data revealed soft consumer inflation.
- Data revealed that US wholesale inflation increased by the most in three years.
- Market participants are waiting to see the outcome of peace talks between Trump and Putin.
Interest futures fell on Friday as Treasury yields rebounded after Thursday’s upbeat US wholesale inflation report eased rate cut expectations. However, Fed rate cut bets remained elevated after a set of poor economic data.
At the start of the week, interest futures gained after US data revealed soft consumer inflation in July. The CPI rose by 0.2% as expected, a decline from the previous increase of 0.3%. Meanwhile, the annual figure increased by 2.7%, missing estimates of 2.8%. The report came soon after a downbeat jobs report in the previous week, increasing pressure on the Fed to lower borrowing costs.
After the report, market participants were almost fully pricing a rate cut in September. Moreover, US Treasury Secretary Scott Bessent called on the central bank to cut rates by 50-bps to make up for lost time. He also said he was hopeful that Trump’s pick Steven Miran would be ready to vote during the September meeting. Experts believe the latest Fed policymaker will be a dove, pushing for rate cuts.
The set of downbeat US economic data intensified the conflict between Trump and Powell. The US president felt he had been right all along and everyone who predicted higher inflation and a weak economy were wrong. As a result, he threatened a lawsuit against Powell, claiming he had poorly managed renovations at the Fed headquarters.
The conflict raised concerns about the independence of the US central bank. At the same time, it highlighted the fact that Trump might ensure to pick a dovish candidate as the next Fed Chair. This means bigger and faster rate cuts when Powell’s term comes to an end in May.
All these supported bets for a rate cut in September, leading to a decline in the dollar and Treasury yields. while interest futures gained.
US wholesale inflation (Source: Bureau of Labor Statistics)
However, the trend reversed on Thursday after data revealed that US wholesale inflation increased by the most in three years. The US PPI rose by 0.9%, well above estimates of a 0.2% increase. The report dashed hopes for a massive cut in September. Moreover, it allowed yields to recover, which weighed on interest futures.
Currently, market participants are waiting to see the outcome of peace talks between Trump and Putin.
