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Treasury yields dip after Fed's favorite inflation gauge stays unchanged

U.S. government debt yields fell Friday after the Federal Reserve's preferred inflation metric was stagnant during the month of August.

The personal consumption expenditures (PCE) price index excluding volatile food and energy components was unchanged after rising 0.2 percent in July, according to the Commerce Department. August's results put the year-over-year increase in the core PCE index at 2 percent.

The core PCE index, the Fed's favorite inflation gauge, hit the central bank's 2 percent target in March for the first time since April 2012.

The yield on the benchmark 10-year Treasury note was lower at around 3.063 percent at 4:57 p.m. ET, while the yield on the 30-year Treasury bond held steady at 3.207 percent. Bond yields move inversely to prices.

U.S. Markets Overview: Treasurys chart

The Federal Open Market Committee (FOMC) hiked its benchmark interest rate by a quarter point Wednesday and announced that an additional hike was projected by year-end, while three more were penciled in for 2019.

"The main thing where we might need to move along a little bit quicker if inflation surprises to the upside. We don't see that," Powell told reporters during his quarterly news conference Wednesday.

Fed members also decided to drop language saying that "the stance of monetary policy remains accommodative," a signal to some traders that the Fed considers itself closer to being done with regular rate hikes.

"No one disputes the fact that the U.S. economy is strong, steady, and could have legs well beyond anyone's forecast, the question remains: if inflation continues to flat line, does the Fed begin to do harm by continuing to raise rates?" said Kevin Giddis, head of fixed income capital markets at Raymond James.

"Time will only tell and the state of the market isn't all wrapped up in just the Fed, there are other things to watch as well," he added.

Investors continue to keep an eye on trade developments between the U.S. and major economies, including Canada and China, as trade tensions continue to ratchet up.

President Donald Trump is set to welcome Chile's President Sebastián Piñera to the White House, where the two leaders will likely comment on pro-growth policies, combating corrupt and illicit networks and cybersecurity.