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How views on interest rates have changed since the start of 2024. Then, in January, the consensus view called for as many as six interest rate cuts from the Federal Reserve in 2024 for a total of 150 basis points in cuts to the Fed’s benchmark interest rate. Today, after a dip in first quarter GDP below a 2% annual rate and an uptick in core PCE inflation, the markets are pricing in just 33 basis points in rate cuts and quite possibly no cut until the Fed’s December 18 meeting.

Today, April 25, the CME FedWatch Tool, which calculates the odds of Fed move, showed only a 31.7% chance of cuts at the July meeting, down from 44.1% odds yesterday. Odds of a September cut fell to 58.4% from 69.2% yesterday Odds of a December 18 cut were at 79.4%, about even with yesterday’s 80.6%.

The yield on the 10-year Treasury roe 6 basis points today to 4.70%. The yield on this benchmark has now climbed 130 basis points in a year. (It takes 100 basis points to make up one percentage point.) The yield on the 2-year Treasury rose briefly above the 5.00% level that I’ve been watching before closing the day at 5%. (I’m watching 5% because it should be a high enough yield to bring significant numbers of buyers into the Treasury market. A move in yields above 5% would signal more downward pressure on bond prices and even higher yields ahead.)

The combination of slower economic growth and stubbornly higher inflation looks to have revived worries about stagflation (where inflation remains high even as growth slumps.) I think that worry is an over-reaction so far but it bears watching.

With today’s retreat in bond prices, the Treasury market is set for a fifth-straight week of losses.