Federal Reserve Rate Cuts Delayed: Inflation Surge Impacts Bond Yields

Hot Inflation Puts Federal Reserve Rate Cuts on Hold, Bond Yields Jump

Hot inflation data is indicating that rate cuts from the Federal Reserve are further away than ever, as bond yields soar. The two-year U.S. Treasury note yield has reached its highest level in about two months at 4.61%. Recent data has not been favorable for investors, making the pathway to achieving a 2% annual inflation rate complex. Market expectations have shifted, suggesting no change in rates for the upcoming Federal Open Market Committee’s May decision. Just a few months ago, there was an 83% probability of at least two rate cuts by that time. However, pressure on prices from shelter prices and wage gains in a tight U.S. labor market are contributing to the change.