This week, U.S. Treasury trading has reinforced market conviction that the Federal Reserve will cut rates again in December, despite noisy inflation signals. The 10-year yield briefly slipped below 4% for the first time in almost a month, after New York Fed President John Williams signaled he could support a cut at the next meeting, according to a Wall Street Journal live update. Futures markets now price in roughly an 80–85% chance of a quarter-point move.
Shutdown-delayed producer price data complicate the picture. Headline PPI for September rose 0.3% month on month and 2.7% year on year, while core PPI excluding food and energy increased a milder 0.1% on the month and 2.6% annually, the lowest in over a year. That combination suggests underlying price pressures are easing even as volatile categories like fuel and food remain elevated. Treasury Secretary Scott Bessent publicly urged the Fed to cut, arguing that the prolonged shutdown has already weakened the economy and that officials should focus less on public commentary and more on listening to rate-sensitive households and businesses.
With much October data missing and consumer confidence sliding, the Fed is effectively setting policy using stale hard data and real-time sentiment. Traders are also watching the White House’s search for a new Fed chair, with National Economic Council Director Kevin Hassett seen as a dovish front-runner. A confirmation of a more pro-cut leader could reinforce the rally in Treasuries and growth stocks, but it also raises the risk that the Fed underestimates any renewed inflation if energy or food shocks persist.
