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Investing.com – Yields jumped as traders delayed expectations of the Federal Reserve’s first rate cut to June after flat inflation data.
The yield on the Fed’s two-year bond, which is sensitive to Fed policy, rose as much as 16 basis points to 4.63%, before retreating slightly to around 4.58%.
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Interest rates on Treasury bonds for all maturities rose by at least six basis points after the so-called core consumer price index, which excludes food and energy costs, rose 0.4% from December, more than expected and the largest in eight months, according to the government. . Numbers Tuesday.
Fed swaps tracking US central bank policy meetings now see just a 32% probability of a rate drop in May, down from about 64% before the consumer price data was announced. While the first full cut in interest rates by a quarter point was postponed to July from June, traders reduced their expectations for a rate cut to less than 100 basis points compared to about 113 basis points earlier.
“It’s not good news,” Jay Bryson, chief economist at Wells Fargo & Co., said on Bloomberg TV. However, “the Fed is not going to make a decision based on a single data point and May is still a long way off.”
Bryson also stressed that the Fed is guiding its monetary policy from the Personal Consumer Expenditure Price Index, which shows inflation is running at a slower pace.
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Fed policymakers were looking for more evidence that price pressures are easing, and they got little of that on Tuesday, after a government report showed that consumer price inflation rose higher than expected last month.
The consumer price index rose 3.1% in January from a year earlier, down from the 3.4% pace in December, but more than economists’ expectations of 2.9%. Core inflation, which excludes energy and food prices, rose 3.9% from a year earlier for the second month in a row.
“If this situation continues for another month or two of inflation remaining high, there will be no rate cut in June, and we may be looking at September,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “It is a hotter report than expected and it is part of “What the Fed was implying when it said it was too early to say inflation has been beaten.”
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Money markets have recently trimmed rate cut bets, pricing in four quarter-point cuts by the end of the year with a 40% chance of a rate cut, according to swaps tied to policy meeting dates. This compares to more than six expected a month ago. The first such reduction is fully priced in by June, with a two in three chance of a reduction in May.
It indicates that expectations regarding the May meeting changed immediately after the release of the data compared to the rate recorded yesterday, as traders now expect interest rates to be fixed at 60.4% after they were at 44.9% the previous day.
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2024-02-13 15:09:00
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