US CPI data triggers volatile market reaction as yields surge and stocks rebound

The August Consumer Price Index report landed on September 11. Stocks dropped, gold dropped, Treasury yields spiked toward 5%, and then markets reversed course and clawed back losses.

The Bureau of Labor Statistics reported that CPI rose 0.4% month-over-month and 3.4% year-over-year. Core CPI, which strips out food and energy, came in at 0.3% monthly and 2.4% annually.

The numbers behind the nervousness

Brent crude oil surged past $100 per barrel, reaching between $108 and $110 amid geopolitical tensions involving Iran and supply disruptions in the Strait of Hormuz.

The Producer Price Index, which dropped before CPI, had already come in hotter than expected.

Treasury yields responded accordingly. The 10-year note yield pushed toward 5%, touching roughly 4.98% to 5%, a level the market hasn’t seen since late 2023. The 30-year yield hit 19-year highs.

The S&P 500, Nasdaq, and Dow all sold off as traders processed the implications, but all three indexes staged intraday rebounds. Gold followed a similar script, with an initial dip giving way to buying.

The Fed’s next move just got more complicated

Market-implied odds of a 25 basis point rate hike at the upcoming FOMC meeting on September 15-16 jumped to between 65% and 70% following the CPI and PPI reports.

Core CPI at 2.4% year-over-year is not far from the Fed’s 2% target. The gap between headline and core inflation, roughly a full percentage point, illustrates how much of the current problem is energy-driven.

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