Following the acceleration in the US Labor Department's August producer price index for final demand goods and services, expectations that the Federal Reserve will move to raise rates at next week's meeting strengthened somewhat. The August PPI rose 5.4% year-on-year, accelerating from 4.8% in July, and rose 0.4% month-on-month, accelerating from 0.1% in July. Based on CME Group's fed funds futures, the probability that the Federal Open Market Committee will decide on a 0.25 percentage point rate hike at its September 15-16 meeting is about 70%, up from about 65% before the PPI release. The market has priced in a view that the Fed will carry out at least one rate hike, and possibly two, by the end of the year. Analysts at Capital Economics said the consumer price index due on the 11th will be a key factor in whether a rate hike is decided at next week's FOMC meeting, adding that the PPI as a whole showed elevated growth and that even if the Fed holds off on a hike at next week's meeting, it is highly likely to move to raise rates within the year.
August PPI acceleration lifts the odds of a September Fed rate hike to ~70%, pushing the effective fed funds rate higher.
Stronger PPI and rising Fed rate-hike odds lift Treasury yields, with the 10Y yield rising as bond prices fall.
