Well, the skeleton crew from the Bureau of Labor Statistics (or was it one employee dressed as a skeleton to hide his/her identity?) showed up for work this week, unpaid, and produced the beloved Consumer Price Index (CPI) so that the Federal Open Market Committee, also still unpaid, has a little bit of data for their talks at next week’s meeting. There is still in 96.7% chance that the FOMC cuts interest rate rates by 0.25% next Wednesday.
Mr./Ms. Skeleton’s CPI report showed that consumers are paying 2.9% more for goods and services right now than they were 12 months ago. Last month it was 3.0% and we were expecting to see an increase of 3.1% with this publication, so this move in the opposite direction bodes well for the fight against inflation. Shelter, which is 44.4% of the CPI mathematics increased only 0.1%. That’s the most subdued in almost 5 years. Gas, which is the largest single factor outside of housing cost, rose 4.3% last month, escalating the total cost of energy by 6.4%. We’re taking that brief spike with a grain of salt, given the decline in oil prices over the last few weeks will nullify last month’s energy gains on the next release. Tariffs on clothing and furniture also contributed to the overall 2.9% increase.
The 10 year Treasury bond yield finally closed Wednesday below 4.0% at 3.96%. Yesterday it floated back up to close at 4.0%, but since the CPI release has since dropped to 3.99%. Four percent represents a critical technical threshold, and if the 10 year stays below that level, watch for mortgage rates to begin their long awaited decline. Ironically, the 10 year has been above 4.0% since a few weeks after the Fed lowered rates in September 2024. I expect the opposite to happen beginning next week.
