Investors price in further tightening despite softer U.S. inflation data, signaling persistent inflation concerns.
Bond markets continue to price in additional Federal Reserve rate hikes despite a cooler-than-expected U.S. inflation report. The data eased immediate rate increase fears but did not shift expectations for further tightening, according to market signals and Fed commentary.
Prior to the report, markets had fully priced in a 25-basis-point hike for July, with odds of another increase later in the year. Inflation remains above the Fed’s 2% target, keeping pressure on policymakers to maintain a restrictive stance.
Yields on shorter-dated Treasuries held steady, reflecting sustained rate hike expectations. Fed officials, including Chairman Kevin Warsh, have emphasized that the inflation fight is ongoing despite recent progress.