On Tuesday, US stocks faced significant declines, extending a three-day trend, as investor confidence wavered over the likelihood of an interest rate cut by the Federal Reserve before June. This shift in sentiment occurred against the backdrop of rising Treasury yields, with the benchmark 10-year Treasury yield reaching its highest level since November.
The reevaluation of expectations surrounding Fed monetary policy was prompted by a series of robust economic indicators suggesting that prevailing conditions may not necessitate an immediate rate cut. Notably, Monday’s manufacturing data surpassed expectations, causing a brief dip in the probability of a rate cut in June to below 50%. Furthermore, the latest figures on job openings highlighted ongoing demand for labor, tempering expectations for imminent rate cuts.
In response to these developments, bond traders adjusted their forecasts, leading to the 10-year Treasury yield peaking at 4.4%, indicating a reassessment of the interest rate landscape.
Despite the evolving outlook, San Francisco Fed President Mary Daly and Cleveland’s Loretta Mester maintained that the possibility of three rate cuts this year remained on the table. They emphasized the importance of gathering additional evidence of declining inflation before committing to policy adjustments.
Looking ahead, investors await insights from Federal Reserve Chairman Jerome Powell’s scheduled remarks on Wednesday. Powell’s commentary is anticipated to provide further clarity on the central bank’s stance regarding monetary policy. Additionally, market participants are eager for the upcoming release of the next jobs report on Friday, which is expected to offer additional insights into the state of the labor market and its potential implications for Fed policy decisions.