* Fed’s Waller says he is inclined to keep rates steady if data confirms cooling inflation
* Markets price 50.4% chance of September Fed hike, down from 63.2%, CME FedWatch shows
* Weekly initial jobless claims rise 2,000 to 206,000, Labor Department data shows
(Updates to afternoon trading)
NEW YORK, Sept 3 (Reuters) – U.S. Treasury yields fell on Thursday, moving lower after comments from Federal Reserve Governor Christopher Waller dampened expectations the central bank would raise interest rates, while economic data indicated the labor market remained on stable footing.
Waller said in prepared remarks at a Reuters NEXT Newsmaker event in Washington that if upcoming data confirms that inflation pressures are cooling off, he is inclined to argue in favor of keeping interest rates steady at the U.S. central bank’s next policy meeting.
In addition, Waller said he’s inclined to be patient on rate policy while watching to see if price pressures ease.
Expectations for a hike at the Fed’s mid-September meeting retreated after the comments, with markets now pricing in a 50.4% chance for a hike, down from 63.2% in the prior session, according to CME FedWatch.
The yield on the benchmark U.S. 10-year Treasury note fell 3.8 basis points, on track for its biggest fall since August 25, to 4.756%. On Wednesday, the yield on the note hit 4.818%, its highest since November 1, 2023.
GLOBAL YIELDS JUMP ON INFLATION FEARS
Yields around the globe had jumped earlier this week, in part due to inflation concerns spurred by rising oil prices as attacks in the U.S.-Iran war restarted. Comments from some Fed officials supporting a rate increase also served to lift yields.
“We think the market did get overbaked,” said Jay Hatfield, chief executive and chief investment officer at Infrastructure Capital Advisors in New York.
“The data would support a cut, but of course, headline inflation is awful. And now the December contract is more relevant, and there are still expectations of rate increases, but the data doesn’t support it, so CPI is going to be critical.”
The Labor Department’s monthly Consumer Price Index (CPI) data is due next week.
U.S. crude rose 0.24% to $91.23 a barrel and Brent fell to $95.39 per barrel, down 0.25% on the day as continued supply disruption concerns were offset by comments from Russian President Vladimir Putin signaling an openness to peace talks with Ukraine.
JOBLESS CLAIMS EDGE HIGHER
On the economic front, weekly initial jobless claims climbed 2,000 to a seasonally adjusted 206,000, slightly above the 205,000 estimate of economists polled by Reuters.
The data was the latest in a string of reports on the labor market this week that pointed to a slow but stable jobs market. The Labor Department will release its monthly payrolls report on Friday, which will help shape expectations for monetary policy.
The yield on the 30-year bond fell 2.8 basis points to 5.239%.
Yields pared some declines after the Institute for Supply Management said its nonmanufacturing Purchasing Managers’ Index advanced to 55.4 last month, above the 54.2 estimate, from 54.1 in July. A reading above 50 signals expansion.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 42.2 basis points.
Other Fed officials scheduled to speak on Thursday include Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsbee.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 5.6 basis points, on pace for its biggest drop since August 13, to 4.33%. The two-year yield had risen to 4.41% on Wednesday, its highest since January 2025.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.364% after closing at 2.362% on Wednesday.
The 10-year TIPS breakeven rate was last at 2.348%, indicating the market sees inflation averaging about 2.4% a year for the next decade.
(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Nick Zieminski)
