Allison Boxer
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Good news on U.S. inflation in May did not sway the Federal Reserve to signal interest rate cuts could come sooner.
Regardless of the U.S. presidential election’s outcome, the budget deficit will likely remain high, but market confidence in U.S. Treasuries is expected to remain stable.
A timely discussion on the term premium, which may be signaling the possibility of rising compensation for bond investors as the yield curve potentially re-steepens.
April’s U.S. inflation report likely offers some comfort to Federal Reserve officials, but rate cuts are unlikely until we see a more substantial deceleration in inflation.
The Fed: Stuck On Hold for Now
Despite the reacceleration of inflation and enduring labor market strength, the Fed remains focused on downside risks.
Federal Reserve officials appear locked in for multiple rate cuts this year, despite inflation reaccelerating – raising questions about the speed and timing of this easing cycle.
The Federal Reserve sees progress on inflation, but wants more certainty before it’s prepared to lower the policy rate.
The market anticipates a swift shift in the Fed cycle.
U.S. inflation cooled more than expected, and bond markets rallied, but the Fed is likely to remain in a long pause.