Bond Traders Reduce Fed Rate Cut Expectations as Trump Urges Immediate Action
Expectations for Federal Reserve interest rate cuts this year have declined as rising oil prices increase concerns about persistent inflation. At the same time, President Donald Trump publicly called for the central bank to reduce borrowing costs immediately.
Markets Scale Back Fed Easing Bets
According to interest-rate swap markets tied to Federal Reserve policy meetings, traders are now pricing in only 20 basis points of rate cuts by the end of the year. This is down from roughly 30 basis points expected on Wednesday.
Market expectations have shifted significantly in recent weeks. As recently as February 28, investors had anticipated at least 50 basis points of easing, equivalent to two quarter-point interest rate cuts.
Trump Criticizes Federal Reserve Chair Jerome Powell
President Trump intensified pressure on the Federal Reserve by criticizing Fed Chair Jerome Powell on social media. Trump referred to Powell as “Jerome ‘Too Late’ Powell”, questioning his leadership and urging the central bank to cut interest rates immediately rather than waiting for the next scheduled policy meeting.
Rising Oil Prices Drive Inflation Concerns
Investor sentiment has shifted since the United States launched strikes on Iran on February 28, triggering a surge in global oil prices. Traders are demanding higher Treasury yields to compensate for the risk that elevated energy costs could reignite inflation.
The selloff in U.S. Treasury bonds continued on Thursday. The yield on the 2-year Treasury note rose 10 basis points to 3.76%, reflecting the market’s reduced expectations for near-term monetary easing.
Uncertainty Surrounds the Fed’s Policy Path
The shift in market pricing highlights growing uncertainty about the Federal Reserve’s ability to cut interest rates while inflation risks remain elevated due to geopolitical tensions and rising energy prices.
Meanwhile, Kevin Warsh, President Trump’s nominee to lead the Federal Reserve, is still awaiting Senate confirmation.
