U.S. treasuries gain as inflation reading matches expectations

Treasuries gained after a reading on inflation came in as expected, leaving the Federal Reserve on track to continue cutting interest rates next month.

The gains pushed down yields by about one basis point across tenors. The rate on two-year notes — which most closely track expectations for changes to monetary policy — dipped to 3.64%, while the benchmark 10-year moved to 4.16%.

Personal consumption expenditures for August excluding food and energy rose 0.2% from the prior month, in line with analyst expectations. The measure — often called the Fed’s preferred inflation gauge — was up 2.9% on an annual basis. Separately, a gauge of consumer spending rose at a solid clip.

“These numbers look to me that they are consistent with what markets were expecting,” said James Bullard, former president of the St. Louis Fed, said on Bloomberg Television. “This leaves everything on track to have further rate cuts during the next two meetings of the FOMC.”

Yields are still higher since last week’s Fed decision to reduce borrowing costs by a quarter point to a range of 4% to 4.25%. After that decision, Chair Jerome Powell signaled policymakers would take a cautious approach to further reductions.

An index of Treasuries has fallen 0.5% since the decision through Thursday, though it is still up more than 5% this year.

Interest-rate swaps showed traders are pricing in 20 basis points of cuts at the Fed’s October meeting and a total of 38 basis points by the end of the year, unchanged from before the PCE data was released.

“This data is not hot enough to worry the Fed, so they can still look through tariff effects,” said Kim Rupert, an economist at Action Economics.