Market sees next Fed hike in October, following Barr comments, hot inflation

Key Points:

• Federal Reserve Governor Michael Barr indicated that an interest rate hike in October is likely, stating that further policy adjustments are needed to bring inflation down to target levels while supporting sustainable growth and maximum employment.
• S&P Global's flash PMI data showed manufacturing and services sectors at their highest growth levels in over four years, with the composite index reaching a 62-month high, signaling strong economic activity.
• Inflation pressures intensified as input costs rose sharply due to higher fuel, transportation costs, and wages, pushing overall inflation measures to their highest since October 2022.
• Employment growth in both the service and manufacturing sectors accelerated significantly, with service sector employment expanding at its fastest rate since 2002, reflecting strong labor demand.
• Market reactions included a jump in the probability of an October rate hike to 73%, and a notable increase in Treasury yields, with the 2-year note yield rising over 13 basis points to 4.9%.