Traders are increasing their expectations for Federal Reserve interest-rate cuts this year following weaker-than-expected inflation data. Treasuries rallied after a report revealed a slowdown in inflation in May, leading to a drop in two-year yields. Swap contracts now predict rate reductions in November and December, with a 76% chance of a cut in September.
US yields across the curve decreased, with the benchmark 10-year yield down by 11 basis points. The core consumer price index, excluding food and energy costs, rose at a slower rate in May, easing concerns about high rates and inflation pressures.
The shift in expectations came just before the Fed’s June policy announcement, where Chair Jerome Powell indicated that data released during the meeting could impact economic projections. Traders are now eagerly awaiting the updated dot plot to gauge the future of US monetary policy.