Traders Maintain Expectations of Fed Rate Cuts in June Despite Inflation Increase
Traders maintained expectations that the Federal Reserve (Fed) will delay further interest rate cuts until June. This follows data indicating that inflation, as measured by the Fed's preferred gauge, rose to 2.6% in December, which was in line with economists' expectations.
The inflation report was released simultaneously with hawkish monetary policy commentary from Fed Governor Michelle Bowman. However, traders of futures tied to the Fed's policy rate still priced in a 70% probability that the short-term borrowing rate would be 4.25% or lower after the Fed's June meeting, a minimal change from earlier in the day.
Additionally, they anticipated a second and final 2025 interest rate cut no sooner than October.