After an especially bruising week of hot back-to-back inflation headlines, increasing uncertainties about the end of the Iran war’s energy shocks, and a flaccid state visit to China, the bond market’s outlook for a Fed interest-rate hike this year flexed.
Long-dated Treasury yields pushed sharply higher, with bond traders upping the risk that the central bank may need to tighten monetary policyrather than ease, as was expected at the start of the year
One major bank dropped a strong warning in response to the bond market’s jitters. BNP Paribas Chief U.S. Economist James Egelhof and Head of U.S.
Rates Strategy Guneet Dhingra wrote in an email note to TheStreet that, in the end, their view is the Federal Open Market Committee is likely “to strongly prefer” a long-term hold stance to rate hikes in 2026. “We think the FOMC will entertain hikes only in a world of bad choices: either to allow inflation to increase further and become further entrenched into the economy, or to accept the risk that a policy adjustment could prove macroeconomically destabilizing,’’ the note said. The note added that should the Fed begin hiking rates later this year under new Chair Kevin Warsh, “this would create downside risk to our otherwise optimistic economic outlook.” Bond market ups Fed rate-hike forecast Bond traders have been preparing for higher inflation risks since the Iran war began in late February. And that preparation includes the possibility that the central bank will need to raise interest rates sooner than anyone expected, especially incoming Fed Chair Kevin Warsh.