Bond Traders Keep Bets on a Fed Hike This Year After CPI Report

Treasuries strengthened slightly on June 12, 2024, following the release of the May Consumer Price Index (CPI) report, which showed core inflation accelerating at a slower pace than anticipated. Bond traders continue to price in a high probability that the Federal Reserve will implement at least one interest rate hike by the end of 2024. The CPI data indicated that core inflation, excluding food and energy prices, rose by 0.2% month-over-month, falling short of the 0.3% increase economists had predicted. On a year-over-year basis, core inflation stood at 3.4%, also below the forecasted 3.5%. This moderation in price pressures provides some relief to policymakers concerned about persistent inflation. Despite the cooler-than-expected inflation figures, the market sentiment remains cautious, with futures markets assigning a 50% probability to a Fed rate hike at the July meeting and a higher likelihood for subsequent meetings. The Federal Reserve's Federal Open Market Committee (FOMC) is scheduled to release its latest policy decision and economic projections later on June 12, 2024, which will be closely scrutinized for any shifts in the central bank's stance on monetary policy.