According to Bloomberg, swap traders have lowered expectations for interest rate cuts by the US Federal Reserve (Fed) for the rest of this year. They now project the Fed to make just two steps in reducing borrowing costs in 2025 amid softening trade relations between the United States and China.
Swaps targeting future central bank meetings indicate the Fed easing monetary policy by just 56 basis points by December. Last week, a reduction of nearly 75 basis points was expected. Meanwhile, the forecast of a first rate cut of 0.25% to be delivered in September remained unchanged.
On Monday, two-year bond yields, which are sensitive to monetary policy, rose 12 basis points and again exceeded 4%, staying close to this level by the end of the trading day. As noted by Bloomberg, the rise in yields combined with weakening expectations of rate cuts signals a further decline in bullish sentiment on bonds.
The rollback of market expectations regarding the future course of interest rate continued after the US central bank published a statement, in which Chair Jerome Powell spoke in favor of maintaining a wait-and-see approach. According to Powell, this is necessary to assess the impact of tariffs on inflation and GDP growth.