US | Markets have come round to the view that the Fed will not cut rates this year

Summary

Earlier this month, FOMC members voted unanimously for a skip rather than a longer pause with recent indicators suggesting that economic activity has continued to expand at a modest pace

Key points

• Key points:
• Medium-term yields continued to rise amid renewed hike expectations, while short-term yields returned to normal after US lawmakers agreed earlier this month to lift the debt ceiling
• The 10y-3m yield spread plunged to a fresh low of c. -200 bps after the odds of a hike in July jumped following the updated “dot plot” and Fed’s renewed hawkishness
• Markets believe the Fed will only raise rates one more time in July; however, they also seem to have come round to the view that an easing cycle is unlikely to start this year
• One more 25bp hike in July is now very likely; the FOMC will likely skip again in September, and November’s softer core inflation will likely convince them to end the hiking cycle

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