By Martin Baccardax
Wall Street is finding the challenge of parsing delayed economic data even more frustrating this week, with stock markets cheering a muted Friday inflation report and bond investors dumping Treasuries amid concerns that price pressures will remain sticky well into the coming year.
The Bureau of Economic Analysis' delayed September PCE inflation report showed both core and headline readings that were largely in-line with Wall Street forecasts.
That, alongside the weakening data in the labor market, has likely cemented the case for a Federal Reserve rate cut next week in Washington. But it hasn't put to rest concerns that markets are pricing in too many reductions in 2026.
Core inflation did slow for the first time in April, but remains a lot closer to 3% than to the Fed's 2% target, and tariffs are likely to keep feeding into the economy as more timelier readings emerge.
Elizabeth Renter, senior economist at NerdWallet, thinks that could take months.
"We may never have a full picture of the economy, particularly for October," she said. "And until we see November data on key economic measures that would allow us to better connect the dots, the Fed's risk of a misstep is heightened."
Bond markets are reacting in kind, with benchmark 10-year Treasury note yields rising 3 basis points to 4.132% in midday Friday trading, while 2-year notes rose by a similar amount to change hands at 3.556%.
Longer-dated 30-year bond yields, meanwhile, traded at the highest levels in 3 months and were last marked at 4.794%.
Those bond market moves have clipped early gains in stocks, as well, with the S&P 500 last marked 12 points higher on the session and the Nasdaq trading lower than its opening bell price.
The CME Group's FedWatch pegs the odds of Fed cut next week at around 88%, but the chances of a follow-on reduction in either January or March of next year are no better than 47%.
Bret Kenwell, U.S. investment analyst at eToro, notes that while today's PCE inflation figures are "fairly dated," they nonetheless raise difficult questions and point to a "sticky inflationary environment."
"Not only does that create a hurdle for consumers, but it could make it difficult for the Fed to follow through with aggressive rate cuts in 2026 unless the labor market is showing considerable weakness," he said.
Bond markets might also be reflecting what ING analyst Padhraic Garvey describes as "the pure inflation story," where price pressures remain elevated for a longer period, rather than the "growing macro vulnerability" that would induce Fed rate cuts.
Fiscal concerns, as well, haven't fully worked their way out of investors' focus, with U.S. debt nearing $38 trillion and President Donald Trump floating the idea of returning the billions collected in tariffs to taxpayers in the form of a stimulus check.
The Fed will undergo a regime change next year which is likely to deliver deeper interest rate cuts irrespective of conditions in the broader economy.
Treasury Secretary Scott Bessent is also pushing for new residency requirements for regional Fed governors, a move Bank of America said "shows how the Trump team is likely trying to influence regional Fed boards and potentially flip seats."
It's a complicated mix for Wall Street heading into the final two trading weeks of the year.
"We are optimistic on the stock market in the short run because the economy is growing, the Fed is cutting rates and corporate profits are increasing," said Chris Zaccarelli, chief investment officer at NorthLight Asset Management. "But we are likely to see a lot more volatility next year because so many of the macroeconomic conditions are likely to change."
Especially if yields keep rising.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 05, 2025 12:43 ET (17:43 GMT)
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