Returns were largely unchanged despite Tuesday’s economic data showing higher-than-expected wholesale inflation. Producer prices rose 0.8% in May, against a Dow Jones estimate of 0.6%. On an annualized basis, the producer price index rose 6.6% in May – the largest 12-month increase since data began in 2010.
A separate report showed retail sales fell 1.3% in May, more than the 0.6% forecast by economists.
The two-day policy meeting of the Federal Reserve Open Market Committee is due to end on Wednesday afternoon, followed by a press conference with Fed Chairman Jerome Powell.
The Fed is not expected to take monetary policy action at its meeting, although investors will be closely following Powell’s comments for signs of the central bank’s possible asset-buying plans.
Tiffany Wilding, US economist at PIMCO, said Monday that the investment firm expects the Fed to raise its growth outlook and “significantly revise its inflation forecast” at its meeting.
“As a result of the better growth prospects and despite the temporary nature of the rise in inflation, we believe the majority of Fed officials will also advance their forecasts for the first rate hike by 2023,” Wilding said, compared to a projected rate hike in March 2024.
Wilding added that PIMCO’s base case continues to be that the Fed will announce a tapering of bond purchases at its December meeting. She said, however, that Powell could promote the idea that the Fed could consider the possibility of a tightening in September if “inflation is more stubborn than expected”.
The National Association of Home Builders’ June Housing Market Index will be released at 10 a.m. ET.
Auctions for $ 34 billion in 52-week notes, $ 40 billion in 42-week notes and $ 24 billion in 20-year bonds are due to take place Tuesday.
– CNBC’s Maggie Fitzgerald contributed to this report.
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