(Bloomberg) -- Bond traders pushed out bets for the next Federal Reserve interest-rate cut to December as underlying US inflation last month rose by more than forecast.
The market is pricing in just one quarter-point reduction in the remainder of 2025 after the so-called core consumer price index — which excludes food and energy costs — increased 0.4% in January. Treasuries slumped, sending yields higher across all maturities by at least eight basis points.
“Today’s CPI print is clearly on the toasty side of warm,” said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott. For the Fed, “the data simply aren’t cooperating for the moment.”
In the swaps market tied to Fed policy decisions, traders were pricing in just 25 basis points worth of easing by December at 9 a.m. New York time. Before the data, the first rate cut this year was seen in September.
Yields on two-year notes, which are most sensitive to the central bank’s policy, rose as much as 10 basis points to 4.38%. The 10-year rate also briefly rose as much as 10 basis points to 4.64%. The dollar jumped.
The data comes at a crucial time for both Fed officials and the US government debt market. On Tuesday, Fed Chair Jerome Powell told Congress the Fed doesn’t need to rush rate cuts given the resilience of the economy. Traders will be watching for any new insights Wednesday as his two-day semiannual discussion before Congress continues.
The Fed has made “a pretty big pivot from focusing on the labor market, which was a concern at the tail end of last year, to now focusing on inflation,” said Anastasia Amoroso, iCapital Network’s chief investment strategist, on Bloomberg Television just ahead of the report.
President Donald Trump, however, said earlier on Wednesday in a post on Truth Social that interest rates should be lowered.
Plus, investors are staring down a deluge of new debt, with a $42 billion auction of 10-year notes slated for later on Wednesday and a $25 billion sale of 30-year bonds on Thursday. An auction of $58 billion of 3-year notes on Tuesday received solid demand.
--With assistance from Kristine Aquino.
(Updates with pricing, comments and detail on auctions.)
