The US Treasury yields for two- and five-year notes have reached their highest levels of the year, signaling expectations of fewer interest-rate cuts by the Federal Reserve. According to Goldman Sachs Group Inc. and swaps traders, the likelihood of multiple rate cuts has decreased.
On Tuesday, the two-year yield climbed to 4.749% and the five-year note touched 4.367%, the highest levels since December. Swap contracts indicate that the probability of a rate cut in June is now less than 50%, although expectations have been fluctuating.
Market conditions and economic data are pointing towards a more measured approach by the Fed when it comes to cutting rates. Goldman Sachs has adjusted its forecast to predict three quarter-point interest-rate cuts this year, down from the previous projection of four cuts. Economists at the bank anticipate the first rate reduction to occur in June, followed by three additional cuts in 2025.
Federal Reserve officials are likely to reassess their projections based on inflation and growth figures, potentially leading them to suggest fewer cuts when they conclude their meeting on Wednesday. Recent reports on inflation have caused some in the market to believe that rate cuts may be delayed.
The Fed may decide to start an easing cycle in June, aiming to avoid the risk of maintaining rates at elevated levels for too long. Overall, the shift in market expectations and economic indicators hint at a more cautious stance by the central bank in the coming months.
