The inflation print the Federal Reserve wanted arrived on Wednesday. The bond market ignored it. August PCE rose 3.4 percent from a year earlier, below the 3.7 percent forecast, and core PCE came in at 3.0 percent — and the 10-year yield still tagged 5.306 percent, the highest since June 2007.
The 30-year Treasury yield pushed through 5.6 percent, a 2002 high. The average 30-year fixed mortgage rate reached 7.6 percent, according to Mortgage News Daily, the most expensive reading since November 1, 2023. October rate-hike odds fell under 40 percent after the PCE number. That is a futures-market verdict. It is not a mortgage-market one. Equities closed mixed into quarter-end: the S&P 500 slipped 0.25 percent to 7,651.54, the Dow lost 443 points, or 0.86 percent, to 50,906.05, and the Nasdaq rose 0.24 percent to 26,861.06.
The quarter itself split the same way. The S&P 500 and Nasdaq each gained about 2 percent in the third quarter. The Dow lost 2.7 percent. September, historically weak, took 0.5 percent off the S&P 500 and 4.3 percent off the Dow while the Nasdaq added 1.9 percent. Oil stayed near $90 for West Texas Intermediate. Thursday's jobless claims and Friday's September payrolls are the next two prints that can put an October hike back on the calendar New York Fed President John Williams tried to clear a day earlier.
The second-order message is that a cooler inflation gauge no longer buys cheaper housing. Households already sent consumer confidence to a 12-year low on Tuesday. A 3.4 percent PCE reading is supposed to be relief. At 7.6 percent, the 30-year mortgage is a veto. If Friday's jobs report is soft, the Fed may keep October empty. The people shopping for a house are already paying as if the long end of the curve won.
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