Producer prices rise 6.5% from a year ago, the most since 2022, and the 10-year yield closes at 5.15% as the dollar hits a 1.5-year high

Friday's inflation report came in a little softer than feared, and the bond market barely noticed. Wholesale prices rose less than expected in October, but the annual rate kept climbing, and three Federal Reserve presidents said they still favor raising interest rates. The 10-year Treasury yield climbed to 5.15%, and the dollar hit its strongest level in a year and a half.

The producer price report

The producer price index for final demand rose a seasonally adjusted 0.3% in October, the Bureau of Labor Statistics said, below the 0.4% increase economists surveyed by Dow Jones expected, according to CNBC. That was a sharp slowdown from September's jump of more than 1%.

The yearly picture was worse. Producer prices rose 6.5% from a year earlier, up from 6.3% and the highest annual rate since November 2022, CNBC reported. Excluding food and energy, prices rose 0.3% for the month and 5.0% from a year ago, both in line with forecasts, Barchart said. A narrower measure that also strips out trade services rose 0.5%.

"It is economics 101 that producer prices lead consumer prices and right now it looks like consumers will be on the hook for a fresh burst of factory inflation." - Chris Rupkey, chief economist at FWDBONDS, to CNBC

Producer prices matter to the Fed because some components feed directly into its preferred inflation gauge. The report followed Tuesday's consumer price index, which rose 0.4% in October, 0.1 percentage point more than expected.

Yields: a higher close

The 10-year Treasury yield closed at 5.15%, up from 5.10% on Thursday, according to Treasury Department data. The 2-year yield, which is most sensitive to Fed expectations, rose to 4.88% from 4.86%, and the 30-year to 5.47% from 5.43%. Barchart said the 10-year touched 5.172% during the session, a four-week high.

The 10-year yield is the benchmark for mortgages, auto loans and credit card rates, so a move above 5% reaches households directly. The dollar followed yields higher: the dollar index rose 0.22% to a 1.5-year high, Barchart reported.

Three more Fed voices for tightening

Fed officials spent another day leaning the same way. Chicago Fed President Austan Goolsbee said the central bank "has work to do" on inflation, citing an AI build-out that is heating up the economy on top of energy costs, Barchart reported. Boston Fed President Susan Collins said tighter policy may be needed to cool prices.

"We're going to need to, in all likelihood, raise interest rates." - Mary Daly, president of the San Francisco Fed

Markets are fully pricing at least a quarter-point increase at the Dec. 8-9 meeting, with slight odds of a half-point move, CNBC reported, citing CME Group's FedWatch tool. Brazil's Valor Economico said the CME data point to three straight increases starting in December. The Fed's benchmark rate currently sits at 3.75% to 4%.

Oil: flat after a volatile week

Crude barely moved. West Texas Intermediate for December delivery fell 18 cents, or 0.2%, to settle at $88.56 a barrel, according to Newsquawk and Xinhua, matching The Edge's exchange settlement table. It traded between $87.80 and $89.64, Newsquawk said, a narrow range after Thursday's jump on President Donald Trump's comments about Iran.

Newsquawk described the news flow as sparse, with traders waiting for any weekend developments on Iran and on Russia and Ukraine. It cited an Axios report that the director of Israel's Mossad was in Washington on Friday for talks with senior Trump administration officials. The weekly Baker Hughes count of U.S. oil rigs was unchanged at 463.

Gold: a pause after a heavy week

December gold settled up 0.03% at $3,886.30 an ounce, according to The Edge's exchange settlement table, after Thursday's 2.88% drop. Barchart said precious metals settled mixed, held back by the stronger dollar and the hawkish Fed comments. Silver fell 1.89% to $49.121 an ounce. CNBC said gold had lost nearly 4% over the week as of Friday morning.

Stocks and the week

Higher yields were part of the backdrop for a weak day in technology shares. The S&P 500 fell 0.40% to 7,561.67 and the Nasdaq Composite 0.91% to 25,136.27, while the Dow rose 0.10% to 52,347.55. All three posted weekly gains of more than 2%, Reuters said.

What carries into next week

With the inflation data for October now out, attention moves to how many increases the Fed signals beyond December, and whether the 10-year can hold above 5%. Oil traders will watch for any shift in the Iran talks, and stock investors for Nvidia's results on Tuesday.