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US third-quarter GDP and September PCE inflation print at 8:30 a.m. ET as the 10-year Treasury yield holds near 5% and the fed rate path hangs on the data.
- Q3 GDP is forecast near 3.2% annualized, up from about 2.2% in the second quarter.
- Core PCE is expected at 3.1% year over year and 0.3% for September.
- The 10-year yield is near 5%, a level last seen consistently in 2007.
Lead
The Bureau of Economic Analysis releases its advance estimate of third-quarter gross domestic product and the September personal income and outlays report at 8:30 a.m. Eastern on Thursday, October 29. The data arrive one day after the Federal Open Market Committee held the fed rate at 3.75% to 4.00% in a 10-2 vote, with two officials dissenting in favor of a quarter-point increase. The 10-year Treasury yield sits around 5.0%, close to its highest level since July 2007, leaving little room for a hot inflation reading.
What Are Markets Expecting From the GDP and PCE Reports?
Consensus forecasts call for third-quarter GDP growth of about 3.2% annualized, against roughly 2.2% in the second quarter. Estimates run from about 2.7% to 3.5%, with the Atlanta Fed's tracking model at the high end.
On inflation, headline PCE is projected to rise 0.5% on the month and 3.6% from a year earlier. Higher gasoline prices in September are a main driver of the headline figure. Core PCE, which strips out food and energy and is the Fed's preferred gauge, is expected to rise 0.3% on the month and 3.1% year over year. That is more than a full percentage point above the central bank's 2% target.
A core monthly gain of 0.4% or more would mark a clear upside surprise. A reading at or below 0.2% would offer the first meaningful sign of cooling since the Fed's tightening bias returned.
Why Is the 10-Year Treasury Yield Near 5%?
The 10-year yield is near 5% because persistent inflation, heavy Treasury supply and fiscal concerns have pushed investors to demand higher compensation for holding long-dated debt. The benchmark reached 5.04% on September 15, its highest since July 2007. The 30-year bond yield stood near 5.33% after Wednesday's Fed decision.
The path has not been one-directional. An equity selloff on October 22, driven by doubts over the scale of artificial intelligence spending, sent investors into government bonds. The 10-year yield fell 19.3 basis points to 4.953%, its largest one-day drop since March 2023. It has since climbed back to roughly 5.0% to 5.05%.
With the policy rate at 3.75% to 4.00%, the 10-year yield sits more than a full percentage point above the federal funds rate. That gap shows the bond market is pricing in a tighter path for interest rates than the Fed's current stance implies.
How Could the Data Shape the Fed's Next Move?
A hot PCE print would strengthen the case for a rate increase at the December 9 meeting. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented on Wednesday in favor of a quarter-point hike. Cook's vote was her first dissent since joining the board in 2022. It was also the first time a governor and a regional bank president dissented together since 1992.
Chair Kevin Warsh said the Fed's "monetary medicine" is starting to work while reaffirming the 2% target. The committee's statement said more information would help determine the policy stance needed for a timely return of inflation to target. Futures pricing after the decision put the odds of a December increase above 85%, up from about 73% a day earlier.
Strong growth paired with firm inflation would reinforce that pricing. A softer inflation print combined with slower growth would test it.
Market Reaction Ahead of the Data
US equities finished Wednesday modestly higher, ending a run of six straight declines on Fed decision days. The S&P 500 gained 0.28% to 7,744, the Nasdaq Composite rose 0.27% to 26,550, and the Dow Jones Industrial Average added 0.19% to 52,475. Stocks dipped after the statement, rallied during the press conference and then gave back much of the move.
Treasury yields rose after the decision, with the 10-year up more than 3 basis points to 5.024% at one point, before easing as the Fed outlined plans to cut the number of rate-setting meetings from late 2027. Index-tracking funds such as SPY and QQQ remain sensitive to the long end of the curve because higher discount rates weigh most on richly valued technology shares.
What Comes Next for Yields and Equities?
Three scenarios frame the near term. If core PCE meets the 3.1% forecast and GDP lands near 3.2%, the data confirm the current pricing and leave yields anchored around 5%. A hotter inflation reading would push the 10-year above 5.05% and raise pressure on growth and AI-linked equities. A softer print would likely pull yields lower and revive demand for risk assets, though the Fed's hawkish dissents limit how far expectations for a hike can retreat.
Beyond today, the next catalysts are the October jobs report and the December 9 policy decision. Both will show whether the economy can sustain 3% growth without reigniting inflation.
Outlook
Thursday's releases test two competing readings of the US economy: strong growth with inflation stuck near 3%, or a slowdown that eases pressure on the Fed. With the 10-year yield at 5% and a December rate increase largely priced in, the margin for a surprise is narrow in either direction.
