Inflation Told Rates to Rise. Rates Didn't Listen
Heading into the week, most folks watching the market had a clear expectation: Friday’s PCE inflation data* was going to make a move—up or down—that could rattle interest rates more than any other report on the calendar. When the numbers landed hotter than expected Friday morning, the reaction felt like a given. Rates would jump. Right?
Instead, the opposite happened.
And just like that, analysts, journalists, and seasoned rate watchers started scrambling to explain the unexpected. Some of the theories actually hold water. Take this one: the “hot” inflation number may not have been all that hot after all—at least not once you dig into the unrounded data.
Let’s break it down:
The official monthly core inflation reading came in at 0.4% vs. a 0.3% forecast.
But the unrounded data told a different story: 0.362% vs. 0.300%.
In plain terms, rounding made the number look more alarming than it really was. And since the forecast itself (that 0.3%) was also a rounded figure, it’s entirely possible forecasters were already anticipating something closer to 0.34%. Add to that the fact that the annual headline inflation rate is still sitting at 2.5%—not exactly panic-inducing—and suddenly the market’s reaction doesn’t seem so strange.
On a less speculative note, we can be sure that rates have been more than willing to move a bit lower on days where the stock market is tanking. Friday was definitely one of those.
Now, as nice as it would be to say rates are suddenly invincible—able to shrug off whatever economic curveballs come their way—a little caution is smart right now.
Why? Because some of what we’re seeing in the bond market might not be entirely organic. We’re at the end of both a month and a quarter (March is pulling double duty), and that timing tends to bring a wave of unusual trading activity. Big institutional players might be buying or selling large chunks of bonds—not because of inflation data or rate policy, but for reasons like portfolio rebalancing or meeting quarterly benchmarks. Moves like that can put pressure on rates, either up or down, for reasons that have very little to do with what’s actually happening in the economy.
So, part of the recent rate-friendly behavior could be chalked up to end-of-quarter quirks or even general weakness in the stock market—not necessarily a shift in the bigger story. And at least one of those factors disappears next week.
What is certain: the first week of every month brings a flurry of high-impact economic reports. And among them, next Friday’s jobs report is the main event. It’s consistently one of the biggest wild cards for interest rate movement—at least when it comes to scheduled data. If you're watching for the next real test of where rates might go, that’s the one to circle.
*PCE data measures consumer spending on goods and services, including durable goods (e.g., cars, appliances), nondurable goods (e.g., food, clothing), and services (e.g., healthcare, housing). This data accounts for about two-thirds of U.S. GDP, making it a critical driver of economic growth.