US rate cut expectations keep receding
According to Fed Chairman Jerome Powell yesterday, recent data show a lack of further progress on inflation. His reaction was that it would be appropriate to give the policy further time to work.
As IGTV’s Jeremy Naylor explains, the market reaction was instant with US two-year treasury yields rising past 5% to their highest since November last year. The CME Fed watch tool, before Powell’s statement yesterday, saw a 22.7% chance for a 25 basis point cut in June. That reading is now down to 15.3%. Expectations of a July cut also diminished by about 7 percentage points to 41.5%. The event forecast for a September cut is also down from 72% yesterday to the most recent reading of 67.3%.
(AI Video Summary)
Federal Reserve
Federal Reserve Chairman Jerome Powell's recent remarks indicated a persistent inflation issue, leading to a reconsideration of the pace of interest rate cuts. Initially, cuts were anticipated as early as May, but expectations have now shifted, with reduced probabilities for cuts in June, July, and September as per the CME FedWatch tool. Market reaction included a surge in US 2-year yields and the strengthening of the dollar to notable highs against the euro, sterling, and yen. Powell's stance suggests a more cautious approach to monetary policy, possibly limiting rate cuts to once this year based on forthcoming economic data.
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