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Two recent economic reports showed that it could be too early for the Federal Reserve to declare victory in the battle against inflation. The Institute for Supply Management’s readings for both the manufacturing and services sectors indicated rising price pressures at a time when it looks like the Fed at least could breathe a little bit easier. On Wednesday, the ISM reported that its services prices index for August rose to 58.9%, a four-month high and 2.1 points above the July level. A reading above 50% represents expansion. That comes on the heels of the August manufacturing prices reading of 48.4%, which was below the dividing line for expansion but still 5.8 points ahead of July’s level. Following the services reading, traders in the fed funds futures market increased the odds for a November Fed rate hike to about 53%, according to the CME Group . That coincided with a jump in the rate-sensitive two-year Treasury yield to 5.033%, and a slide in stocks that sent the S & P 500 down by as much as 0.9%. “This is certainly not good news for a data-dependent Fed, as the immediate reaction in the Treasury market saw the 10-year Treasury yield jump higher while equities remain under pressure,” said Quincy Krosby, chief global strategist at LPL Financial. “With oil and food prices also higher, this [ISM services] report points to a Fed whose job to quell inflation is certainly not yet quite finished.”‘ Earlier Wednesday, Boston Fed President Susan Collins said policymakers can afford to be patient as new data rolls in. However, she cautioned that “further tightening could be warranted” if the inflation numbers don’t cooperate.
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