The Fed Held Still And The Two Year Treasury Sits At 4.7 Percent

At 8:30 a.m. Eastern this morning the Bureau of Economic Analysis put September PCE inflation at 3.6 percent from a year earlier, up from 3.4 percent in August, and core PCE, which strips out food and energy, at 3.1 percent against 3.0, with the index up 0.5 percent on the month and core up 0.3, the BEA release shows. The afternoon before, the Federal Reserve had held its policy range at 3.75 to 4.00 percent.

The hold was not unanimous. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted for a quarter-point increase, the vote was 10 to 2 where September’s was 12 to 0, and the statement now calls growth “strong” and inflation “elevated,” Yahoo Finance and Admirals reported. Chair Kevin Warsh told reporters that politics played no role, that the Fed’s moves are “starting to work some,” and that “there’s no firm conclusions,” Yahoo Finance reported.

The market had not waited for the committee. Wednesday’s close had the ten-year Treasury at 5.044 percent, up 5.2 basis points on the day, and the two-year at 4.731 percent, CappNotes reported; Admirals had the two-year at 4.70 in late-afternoon trading, and this letter does not reconcile the two readings, and both sit at least 70 basis points above the top of the Fed’s range. Futures traders see about an 85 percent chance of a quarter-point hike at the 9 December meeting, Bloomberg data reported by Yahoo Finance. That is market-implied, not a Fed signal.

This morning, Trading Economics showed the ten-year at 4.99 percent, down 3 basis points, and Yahoo Finance, on a page last updated at 5:23 a.m. Pacific, before the data, had 5.01 percent. Both are intraday readings and will have changed by the time this letter is read.

The growth number came out with the inflation number. BEA’s advance estimate has third-quarter GDP growing at a 3.4 percent annual pace, up from 2.2 percent in the second quarter, IndexBox reported from the release, against forecasts of 3.0 and 3.2 percent on two calendars. The inflation figures matched the forecasts on one of those calendars to the decimal. Consumer spending rose 0.5 percent in September in nominal terms and was unchanged after inflation, Reuters reported, and BEA put personal saving at 3.8 percent of income.

Wednesday afternoon the committee voted 10 to 2 to stand still, and the note that matures in two years was already standing 70 basis points higher or more.

The half-point gap between 3.6 percent and 3.1 percent is food and energy, which core PCE leaves out by definition, and energy is counted in barrels. December Brent settled Wednesday at 115.32 a barrel, up 1.3 percent, and WTI at 102.78, up 2.9 percent, Rigzone reported on the close, and CappNotes carries the same settlements. Tuesday’s settlements, printed in yesterday’s letter, were 113.88 and 99.90, so the figures tie.

Rigzone tied the rise to an Iran attack report, the Wall Street Journal’s account that Washington had told Gulf states to prepare for a short, intense campaign, with traders weighing whether the United States and Israel would resume strikes. What pulled it back after the settlement was a letter. The Journal reported Wednesday that Vice President JD Vance wrote to Mohsen Rezaei, who heads Iran’s Supreme National Security Council, about a possible framework for negotiations, and the New York Times said it proposed a meeting soon with Vance leading the American side, Al Jazeera reported. The letter has not been published.

President Trump was asked whether he had directed it. He said no, that Vance asked what he thought and he said “if you want to do that, that’s OK,” and that it was about getting supplies to people who are not well, The National reported. The Journal had reported that Trump directed it. This letter cannot reconcile the two accounts, and it has not been able to open the Journal’s own article.

Iran has not publicly commented on the letter, Al Jazeera reported. Early Thursday The National quoted Brent at 114.10, an intraday level, and Yahoo Finance’s page showed WTI at 101.46.

Rigzone also described Houthi attacks on Saudi energy infrastructure, including a fire near the Ras Tanura export terminal. This letter attributes no attack to any party beyond what that party itself claims.

BEA’s own account of the quarter, as relayed by IndexBox, credits business spending on equipment and inventories, consumer spending and government spending, offset in part by lower exports, led by petroleum. It says the federal contribution reflected smaller Strategic Petroleum Reserve crude sales than in the second quarter, which are deducted from government consumption. The sources give no estimate of how many points of the 3.4 percent that accounts for, and this letter does not compute one.

Wednesday the oil rose on a warning and fell on a letter, and both stories reach this desk from a newspaper this letter has not been able to read.

Wednesday’s closes, per CappNotes: the S&P 500 at 7,743.98, up 0.28 percent; the Dow at 52,475.10, up 0.19 percent; the Nasdaq Composite at 26,549.85, up 0.27 percent. Before the open this morning, Nasdaq futures were down 1.25 percent and S&P 500 futures down 0.40 percent on a Yahoo Finance page last updated at 5:23 a.m. Pacific, and its headline tied the decline to an drop in Alphabet shares. Those are premarket quotes.

December gold settled Wednesday at 4,051.60 an ounce, down 0.53 percent, per CappNotes, and Trade90X carried the same settlement.

The dates ahead are fixed. The midterm elections are Tuesday 3 November. The Labor Department’s October employment report is due at 8:30 a.m. Eastern on Friday 6 November, after September’s gain of 29,000 jobs and 4.2 percent unemployment, the Bureau of Labor Statistics says. The Fed’s next decision is Wednesday 9 December, Yahoo Finance reported, and the second estimate of third-quarter GDP is due 25 November.

AAA’s latest page, dated 28 October, put regular gasoline at 4.2471 a gallon, against 4.4768 a month ago and 3.0437 a year ago, with diesel at 6.3499.