The Fed's Preferred Inflation Gauge Declined More Than Expected in August, Yet Bond Yields Aren't Budging. Here's One Reason Why.

The Federal Reserve's preferred inflation gauge (PCE) came in softer than expected in August, with core PCE rising 0.2% monthly and 3% annually versus economist expectations of 0.3% and 3.3%. However, bond yields remained elevated around 5.30-5.65%, defying typical market reactions. The muted response is attributed to recent changes in how the Bureau of Economic Analysis calculates PCE, which reduced reported inflation by 0.2-0.3%, and rising fuel prices in September that make August data less relevant. Despite this, the probability of a Fed rate hold in October increased to 60.7%.