US Treasury yields saw an uptick on Wednesday, following earlier declines, as new data indicated continued inflationary pressures. This movement occurred ahead of Federal Reserve Chair Kevin Warsh's highly anticipated speech at the Jackson Hole symposium. The 10-year US Treasury yield climbed to 4.664% from a morning low of 4.629%. The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, rose 0.2% in July, surpassing consensus forecasts, while core PCE accelerated to 0.2%. Annually, the PCE and core PCE both stood at 3.7% and 3.3% respectively, consistently above the Fed's 2% target.
Investors are keenly awaiting Warsh's Jackson Hole address for insights into his strategy for managing inflation, especially since his July press conference left markets uncertain due to a lack of clear forward guidance. Jonathan Pryor of Marex FX highlighted the significance of this year's symposium, stating it's crucial for understanding Warsh's leadership style at the Fed. Kevin Thozet of Carmignac's investment committee noted the market's previous confusion regarding Warsh's stance on inflation. The broader context includes an unusual tension between the Fed and the Treasury, as the Treasury has been intervening to suppress long-term yields, seemingly at odds with the Fed's apparent willingness to let market forces tighten conditions.
The situation is further complicated by the Treasury's recent interventionist move to double buybacks of long-dated securities from $2 billion to at least $4 billion per operation. This action, intended to support prices and lower yields, has been largely ineffective, with yields rising subsequently. Treasury Secretary Scott Bessent has publicly stated readiness for larger, unspecified interventions. This creates a difficult environment for Warsh, as some analysts believe the Treasury's actions contradict his emphasis on market price formation. Many investors are hoping for a stronger commitment from Warsh to the 2% inflation target and a clear explanation of the Fed's response if inflation remains elevated.
