After the release of factory data, the market believes that the probability of a rate cut in June is less than 50%

  • Bloomberg data showed that bond market expectations for a rate cut in June fell below 50% after strong factory data.

  • ISM manufacturing data on Monday showed expansion for the first time in 16 months.

  • A former Fed official said that inflation is in line with the Fed’s hopes, but will create a “wait and see” situation on interest rate cuts.

Bond market expectations for a June rate cut took a hit on Monday as new factory data cut the likelihood below 50% Bloomberg data.

ISM manufacturing index comes in higher than expected, showing expansion in manufacturing For the first time since 2022A rebound in the gauge was fueled by sharp gains in output and new orders, ending 16 months of contraction.

Like previous data, this is another sign of the strength of the U.S. economy, raising questions about whether the Fed should be eager to reverse its policies.

Long-term bond yields posted one of their biggest one-day gains this year after the ISM report was released on Monday, with both the 10-year and 30-year bond yields climbing about 13 basis points. Yields have been climbing as bond traders fret over rate cuts. expected, triggering a market sell-off.

At the same time, Bloomberg quoted overnight index swap and SOFR futures data as showing that swap contracts indicate that the reduction in monetary policy this year will be less than 65 basis points. The media said this was lower than the Fed’s own forecast.

Futures market data is provided by CME Fedwatch Tools It also shows that investors have lost confidence in the June timetable, with less than 57% expecting the Federal Reserve to cut interest rates by then. two weeks ago, 60% expect a rate cut that month.

For its part, the Fed remains confident a rate cut is achievable given Friday’s personal consumption expenditures Report meets expectationsOn an annual basis, the inflation gauge grew by 2.5%.

While Chairman Powell has since said that’s what the central bank wants to see, he noted that the economy’s strong fundamentals allow it to No reason to rush cuts.

“Inflation has been slightly higher than expected for several months,” former Vice Chairman Roger Ferguson said. told CNBC on Monday“I think it’s mostly a wait-and-see scenario right now. The numbers may be firmer, but they may not be revised downwards, so we’ll see.”

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