PPI exceeds expectations and reignites inflation alert! The probability that the Federal Reserve will raise interest rates in September is close to 70%, and the yield on 10-year US Treasury bonds hit a new high since the 2008 financial crisis

The Zhitong Finance App learned that the latest producer price index (PPI) released by the US is higher than market expectations, once again heightening investors' concerns about continuing inflationary pressure and driving the market to rapidly raise bets on the Fed's interest rate hike in September. The interest rate futures market currently predicts that the probability that the Federal Reserve will raise interest rates by 25 basis points at next week's interest rate meeting is close to 70%. Meanwhile, US Treasury bonds were sold off, and the 10-year US Treasury yield rose to 4.92%, the highest level since the 2008 global financial crisis, and further approached the important mark of 5%.

According to the latest market pricing, the probability that the Federal Reserve will raise interest rates by 25 basis points at the September 16 Federal Open Market Committee (FOMC) meeting has risen to 69.8%, significantly higher than 61.2% on Wednesday, and only one step away from 70%.

The rapid rise in interest rate hikes is mainly driven by the latest PPI data. Since producer price increases were stronger than market expectations, investors are concerned that US inflationary pressure has not subsided as clearly as previously expected, and the room for the Federal Reserve to keep interest rates unchanged may shrink further.

After the PPI data was released, traders quickly raised their expectations for future policy interest rate paths, and viewed this data as the latest evidence that US price pressure is still resilient.

The repricing of the market's expectations of the Federal Reserve's policy was also immediately transmitted to the US Treasury bond market. The benchmark 10-year US Treasury yield surged 7 basis points to 4.92% on Thursday, further approaching the 5% mark and rising to the highest level since the 2008 global financial crisis.

Recently, long-term US bond yields have continued to be under upward pressure, and the latest PPI data has further strengthened market concerns that the Federal Reserve may restart interest rate hikes. As investors raised their expectations for future policy interest rates, the price of US bonds came under pressure, and yields rose further.

However, before the Federal Reserve makes a final decision next week, the market will still face another more decisive inflation data, the US Consumer Price Index (CPI) released on Friday.

If the CPI is also higher than market expectations, it shows that price pressure at the consumer level is still stubborn, the probability that the Fed will raise interest rates in September may further break through 70%, and may push US bond yields to continue to rise. Conversely, if the CPI cools down significantly, it could weaken the hawkish influence brought about by the latest PPI and cause the market to lower its bets on the September rate hike again.

Therefore, although the latest PPI has clearly changed market expectations for the September interest rate meeting, there are still doubts about whether the Federal Reserve will finally act. Wall Street is currently closely watching whether Friday's CPI data can further confirm that inflationary pressure is still high, or whether it will force investors to adjust policy expectations again before next week's FOMC meeting.

At a time when the probability of interest rate hikes in September has risen to 69.8%, and the 10-year US Treasury yield is approaching 5%, this week's last key inflation report may become an important catalyst for determining the direction of the Federal Reserve's September policy and the next direction of the US bond market.