Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 07/09/26
August US CPI holds the key to the Federal Reserve’s interest rate decision, while the ECB remains on course for tightening on Thursday
US 10-Year Treasury yields have remained elevated in the past month at circa 4.75% reflecting expectations of higher-for-longer policy interest rates and elevated term premia due to policy unpredictability.
At the same time, limited efforts by the US Administration to slender primary budget deficits around -3% of GDP, especially at a time when the unemployment rate is hovering close to its neutral value, have raised fiscal sustainability concerns.
Replacing longer-dated debt with Treasury Bills will not change the underlying fundamentals of US debt pricing. Treasury Secretary Scott Bessent's announcement that liquidity-support buyback operations will be at least doubled, appears to have been a tactical signal of a more interventionist approach going forward amid multi-year high long-end bond yields.
The increase of buybacks for less liquid, off-the run, bonds in the 10Y-to-30Y segment to circa $36 bn per quarter or $144 bn annualized, offsets approximately 15% of gross issuance in the 10Y-to-30Y bucket per annum.
Duration removal could, inter alia, push down long-term rates, albeit modestly, given the elasticities of the Fed’s Operating Twist program (2012). As a result, the likelihood of a more dynamic approach by the Treasury remains. Moreover, as the Federal Reserve is now unconstrained by the zero lower bound, short-term rates could move higher, doing some of the heavy lifting of financial tightening with the FFR unchanged.
Having said that, Fed Chair Warsh gave a hawkish assessment of the economic and monetary policy outlook at Jackson Hole. He highlighted that would be hard pressed to describe broad financial conditions as restrictive, emphasized that inflation trends have not meaningfully improved despite two consecutive monthly benign reports and reiterated emphatically the Fed’s price-stability objective of 2% as measured by the PCE index (current 3M/3M annualized rate of +2.2% albeit +3.7% on a year-over-year basis).
US labor data for August came out above expectations (55K), with non-farm payrolls increasing by 162k, while investors’ attention will turn to August’s CPI, due on Friday 11th. The Federal Reserve Bank of Cleveland’s model points to core CPI increasing by +0.2% mom or +2.4% yoy, from +2.5% yoy in July. Financials markets are currently pricing in a 60% likelihood of a Fed rate hike in September. On the other side of the Atlantic, the ECB is expected to increase interest rates by 25 basis points to 2.50% on Thursday.
Earlier in August, the first coordinated US-Japan effort to stabilize the yen since 1998 has bought policymakers time, albeit the trend is difficult to be altered without a substantial transformation in relative economic growth outlooks and Japan’s fiscal-monetary policy mix. Having said that, the yen has appreciated by +4% to $/¥157 from $/¥164 against the US Dollar.
Higher-for-longer rate expectations have suppressed S&P500 equity valuations by circa 3 points to 20x, albeit solid earnings growth has more-than-offset P/E compression leading to equity price gains in the order of +3% in H2:2026, so far, following gains of +10% in the first half of 2026.
US 10-Year Treasury yields have remained elevated in the past month at circa 4.75% reflecting expectations of higher-for-longer policy interest rates and elevated term premia due to policy unpredictability.
At the same time, limited efforts by the US Administration to slender primary budget deficits around -3% of GDP, especially at a time when the unemployment rate is hovering close to its neutral value, have raised fiscal sustainability concerns.
Replacing longer-dated debt with Treasury Bills will not change the underlying fundamentals of US debt pricing. Treasury Secretary Scott Bessent's announcement that liquidity-support buyback operations will be at least doubled, appears to have been a tactical signal of a more interventionist approach going forward amid multi-year high long-end bond yields.
The increase of buybacks for less liquid, off-the run, bonds in the 10Y-to-30Y segment to circa $36 bn per quarter or $144 bn annualized, offsets approximately 15% of gross issuance in the 10Y-to-30Y bucket per annum.
Duration removal could, inter alia, push down long-term rates, albeit modestly, given the elasticities of the Fed’s Operating Twist program (2012). As a result, the likelihood of a more dynamic approach by the Treasury remains. Moreover, as the Federal Reserve is now unconstrained by the zero lower bound, short-term rates could move higher, doing some of the heavy lifting of financial tightening with the FFR unchanged.
Having said that, Fed Chair Warsh gave a hawkish assessment of the economic and monetary policy outlook at Jackson Hole. He highlighted that would be hard pressed to describe broad financial conditions as restrictive, emphasized that inflation trends have not meaningfully improved despite two consecutive monthly benign reports and reiterated emphatically the Fed’s price-stability objective of 2% as measured by the PCE index (current 3M/3M annualized rate of +2.2% albeit +3.7% on a year-over-year basis).
US labor data for August came out above expectations (55K), with non-farm payrolls increasing by 162k, while investors’ attention will turn to August’s CPI, due on Friday 11th. The Federal Reserve Bank of Cleveland’s model points to core CPI increasing by +0.2% mom or +2.4% yoy, from +2.5% yoy in July. Financials markets are currently pricing in a 60% likelihood of a Fed rate hike in September. On the other side of the Atlantic, the ECB is expected to increase interest rates by 25 basis points to 2.50% on Thursday.
Earlier in August, the first coordinated US-Japan effort to stabilize the yen since 1998 has bought policymakers time, albeit the trend is difficult to be altered without a substantial transformation in relative economic growth outlooks and Japan’s fiscal-monetary policy mix. Having said that, the yen has appreciated by +4% to $/¥157 from $/¥164 against the US Dollar.
Higher-for-longer rate expectations have suppressed S&P500 equity valuations by circa 3 points to 20x, albeit solid earnings growth has more-than-offset P/E compression leading to equity price gains in the order of +3% in H2:2026, so far, following gains of +10% in the first half of 2026.