- Bond market expectations for a June rate cut fell below 50% after strong industry data, according to Bloomberg data.
- ISM manufacturing data showed expansion on Monday for the first time in 16 months.
- Inflation is in line with the Fed’s hopes, but creates a holding pattern for rate cuts, a former Fed official said.
Bond market expectations for a June rate cut took a hit Monday as new factory data pushed the odds below 50%, according to Bloomberg data.
The ISM manufacturing index came in hotter than expected, showing expansion for the first time since 2022. A sharp increase in production and new orders fueled the indicator’s rebound, ending 16 months of contraction .
As with previous data, it’s another sign of the United States’ unwavering economic strength, casting doubt on whether the central bank should rush to reverse policy.
Following the release of the ISM report on Monday, long-term Treasury yields saw one of the largest daily increases this year, with 10- and 30-year rates climbing about 13 basis points. Yields climbed as bond traders turned against expectations of rate cuts, triggering a market sell-off.
At the same time, swap contracts indicate that monetary policy will decline by less than 65 basis points this year, according to overnight index swaps and SOFR futures, cited by Bloomberg. That’s below the Fed’s own projections, the outlet said.
Futures market data tracked by the CME Fedwatch tool also shows investors are losing confidence in the June timetable, with fewer than 57% expecting the Fed to cut rates by then . Two weeks ago, 60% expected a reduction that month.
For its part, the Fed remains confident that rate cuts are achievable, with the personal consumption expenditures report released Friday in line with expectations. On an annual basis, the inflation measure recorded an increase of 2.5%.
Although Chairman Jerome Powell has since emphasized that this is what the central bank wanted, he indicated that the strength of the economy gave him little reason to rush the cuts.
“Inflation has remained for a few months a little bit higher than one would half hope,” former Vice President Roger Ferguson told CNBC on Monday. “I think right now it’s really a waiting period. Maybe the data will be firmer and maybe it won’t go down, we’ll see.”
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