The Federal Reserve is staying put this summer. No cuts in June, no cuts in July. We believe that’s the central bank’s position after watching the joint statement issued on Monday by the United States and China, were both countries claimed they want to ease off trade tensions.
As soon as that was announced, major Wall Street banks and traders dropped their expectations for a quick rate cut. They’re now saying the first one might not even come until September, and even then, only if things actually get worse.
You see, Trump has revived employment and Wall Street, so the economy isn’t in trouble, and inflation hasn’t cooled enough for anyone at the Fed to start handing out cheaper credit.
Traders step back as yields jump and risk appetite grows
Traders who were betting on three rate cuts this year have backed off. Now the market is pricing in just two cuts for 2025, with swap contracts showing the Fed might only drop rates by 55 basis points, instead of the 75 they expected just last Friday. That adjustment alone rattled the bond market.
The two-year Treasury yield, which always reacts to moves from the Fed, jumped 12 basis points on Monday, pushing back above 4%. That spike came after investors realized the central bank isn’t going to act just because Wall Street wants it to.
The drop in rate-cut bets also made US Treasuries less attractive. Stocks, on the other hand, went up. So the money started chasing risk again.
Since last week’s Fed meeting, where they decided to do nothing, yields have gone up fast. The two-year yield climbed more than 40 basis points, from 3.55% to over 4%. The five-year yield also moved, going from 3.85% to 4.11%. That’s a clear message from the bond market: no more easy money, at least for now.
