Bond traders are wiping out bets that the Federal Reserve will lower interest rates this year after the central bank held its key rates steady and signalled more monetary tightening would likely follow to cool inflation.

Rates on swap contracts referencing future Fed policy meetings now reflect a peak rate of 5.32% in September, while the December 2023 contract’s rate jumped to about 5.23%. As recently as Wednesday morning, the December rate was about 15 basis points below the expected peak, implying most of a quarter-point rate cut. Longer-dated contracts continue to anticipate easing in 2024.

The view that the Fed would shift to cutting rates this year was well-entrenched until recently. In early April, as US regional bank shares slumped after several institutions failed, about three quarter-point cuts were priced in. It has eroded amid surprising resilient US labour-market indicators and inflation readings still well above the Fed’s target. (Bloomberg - Continue Reading)

U.S. producer prices fell more than expected in May as the costs of energy goods and food declined, signalling that inflation pressures were abating throughout the economy and could eventually provide relief to consumers.

The report from the Labour Department on Wednesday also showed the annual increase in producer inflation last month was the smallest in nearly 2-1/2 years. Underlying producer prices were muted. It followed data on Tuesday showing consumer prices edging up in May, with the year-on-year rise the smallest since March 2021.

The Federal Reserve kept interest rates unchanged on Wednesday for the first time since March 2022 when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years. (Reuters - Continue Reading)

The end appears to be nigh at European Central Bank headquarters. For rate hikes, that is.

Policymakers are widely expected to raise key interest rates by 25 basis points on Thursday, which would be the eight consecutive increase, with analysts now focused on the end of this cycle of hikes: some say the ECB will implement one more hike as others posit that two more are likely.

“There is little doubt that the ECB will raise rates by 25bps at the June meeting, and thus, focus will instead be on signalling around future hikes,” TD Securities wrote. “While the governing council will likely keep a noncommittal language around future hikes, it will probably keep hinting that a July hike is likely.” (LiveSquawk - Continue Reading)