NEW YORK—The U.S. Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation gauge, rose 0.4 percent month-over-month in April, exceeding the 0.3 percent consensus forecast. Core PCE, which strips out volatile food and energy components, also increased 0.4 percent, marking the third straight month above market expectations.
The two-year Treasury yield surged nine basis points to 4.98 percent immediately following the 8:30 a.m. ET release, while the benchmark 10-year yield added seven basis points to 4.65 percent. The 2-10 year yield curve spread compressed by two basis points to -33 basis points.
Fed funds futures now price a 92 percent probability of no rate cut at the June Federal Open Market Committee meeting, up from 78 percent a week ago. Traders have fully priced out a September easing, shifting the earliest expectation for a 25-basis point reduction to the December meeting with a 55 percent chance.
Services inflation, excluding energy and housing, continued its upward trajectory, rising 0.5 percent in April. This marks the fourth consecutive month with a reading above 0.3 percent, driven by strong wage growth in sectors like healthcare and leisure. Housing costs, particularly owners' equivalent rent, contributed substantially, increasing 0.4 percent for the sixth straight month.
With core PCE running above 3.5 percent year-over-year, institutional bond managers are extending duration risk more cautiously, given the reduced likelihood of near-term rate cuts.
The dollar index climbed 0.5 percent to 105.8, its highest level since February, as U.S. rate expectations diverged further from other major central banks. Gold prices dropped $22 to $2,305 an ounce, reflecting the stronger dollar and higher opportunity cost of holding non-yielding assets.
Equity markets showed mixed reaction. The S&P 500 index closed up 0.4 percent, but rate-sensitive technology stocks like Alphabet, down 1.2 percent, and Nvidia, down 1.9 percent, lagged broader market gains.
