Treasury Yields Jump as Fed Hike Odds Climb

Grant Calloway

The two year Treasury yield just breached four point six zero percent, hitting its highest level since July of 2024, and the CME FedWatch Tool is locking in an eighty six percent probability of a Federal Reserve rate hike next week. Why? Because when you look past the rounded headline numbers, August core Consumer Price Index came in at an unrounded zero point two eight nine percent. Wall Street was expecting zero point two percent, and that extra nine basis points in the hundredths place is throwing cold water on the easy money crowd. Back on the NYSE floor, during what I always called the greatest four hundred milliseconds in capitalism, a discrepancy in the hundredths place like that would cause pit traders to practically tear their jackets off scrambling to reprice interest rate futures before the ink even dried on the tape.

Grant Calloway

Looking at the premarket cross asset scan this morning, futures are trying to find their footing. S and P five hundred futures are edging up zero point one percent, Dow futures are gaining twenty six points, up about zero point zero five percent, and Nasdaq futures are essentially flat, up zero point zero six percent. Meanwhile, West Texas Intermediate crude is settling near one hundred dollars and five cents per barrel, and Brent crude is retreating two point eight percent to one hundred four dollars and sixty one cents per barrel. But make no mistake, with strategic petroleum reserves drawn down to their lowest levels since 1982, energy remains the wild card in every macro model on the street.

Grant Calloway

Scanning the sector movers, big energy names like Exxon Mobil and Chevron are fluctuating right along with those crude swings. Over in financials, JPMorgan Chase is ticking higher as traders bet that rising short term yields will continue to pad net interest margins. On the flip side, Caterpillar is easing as higher capital costs weigh on heavy machinery sentiment, while Kroger holds steady in defensive retail as shoppers stick to the basics. Before we dive into the policy debate, a quick word from our sponsor. Jellypod is the fast, daily way to transform market noise into clear audio intelligence, so check out jellypod dot com today to simplify your daily research routine.

Grant Calloway

Now, let us tackle the core battle raging between the bulls and the bears right now ahead of next Wednesday's FOMC decision. The bull case isn't completely crazy. They point out that annual core CPI actually fell to a five year low of two point four percent, down from two point five percent in July, and headline annual inflation met expectations at three point four percent. Add in today's pull back in oil, and the soft landing camp argues disinflation is still tracking in the right direction despite a little bump in monthly core numbers. They see any Fed hike next week as a final fine tuning step before policy cools off.

Grant Calloway

But then you talk to the bears, and frankly, they have a heavy set of facts on their side. A four point six percent two year yield is screaming that the bond market does not believe inflation is under control. When you combine elevated core CPI with depleted strategic petroleum reserves both here and abroad, the risk is that energy costs bleed right back into consumer goods and embed inflation expectations. If the Fed hikes into slowing growth, the bears argue policymakers risk walking straight into a late cycle stagflation trap. It is a classic battle between short term momentum and long term valuation discipline.

Grant Calloway

Looking on deck for Monday trading, Wall Street will be navigating the Fed's pre meeting blackout period. With no major tier one economic releases scheduled for the start of the week, trading desks will spend Monday establishing risk parameters and positioning portfolios ahead of Wednesday's interest rate announcement and housing starts later in the week. As an old floor hand used to tell me, never argue with a rising bond yield because the bond market usually turns out to be right in the end.

Grant Calloway

That wraps up our premarket rundown today. Keep your stops tight, watch those yields, and I will see you at tomorrow's opening bell. Please note, this podcast is strictly for educational and informational purposes and does not constitute investment advice or a recommendation to buy or sell any security.