Fed rate cut expectations diminish

Traders’ confidence in three quarter-point interest-rate cuts by the Federal Reserve this year is fading, with markets now favouring just two reductions, as per a Bloomberg report on Monday.

Interest rate swaps suggest around 60 basis points of US monetary easing, indicating two cuts as the most likely outcome, with the first expected by September.

Treasuries fell on Monday, pushing the two-year yield up three basis points to 4.78 per cent. Yields on 10-year debt are nearing the key 4.5 per cent level, while some see this as crucial for rate trends.

US swaps trading has tempered bets on Fed cuts in recent days, with resilient economic data and Fed officials resisting easing. Despite expectations earlier in the year for multiple cuts, progress on inflation has been slow, and robust growth metrics suggest the economy may not need lower rates.

Treasuries have sold off, disrupting investors’ portfolios. Nonetheless, some asset managers anticipate a rally following eventual Fed cuts.