(Bloomberg) -- Investors in the Treasury market look surprisingly unconcerned about price pressures ahead of a key report on US inflation on Wednesday, with focus instead on the outlook of US growth.

The 10-year break-even rate, which measures long-term inflation expectations, has slumped to its lowest since December — despite the risk that President Donald Trump’s tariffs against major trade partners may lift consumer prices.

Investors are betting that shocks to the economy that reduce Americans’ propensity to spend will outweigh higher prices from tariffs, as the trade war ratcheted up a notch with new levies on steel and aluminum.

“Inflation is taking a back seat to the current growth scare,” said Chris Diaz, global fixed income portfolio manager at Brown Advisory. “If we go into recession, there is still plenty of room for rates to fall further.”

Indeed, traders have been ramping up bets on the Federal Reserve cutting interest rates by more than expected, piling into call options on two-year Treasuries that will profit in that scenario. The premium on these bullish bets has risen to the highest since last September, when slowing job growth was feeding fears of a slowdown during the final months of Joe Biden’s presidency.

US break-even rates have been falling over the past month as the market has become more worried about the outlook for economic growth. The 10-year gauge is down about 15 basis points to 2.31%, the lowest in almost three months.

Meanwhile, Wednesday’s consumer price report is expected to show that inflation cooled last month but remained above the Fed’s 2% target. Economists expect core consumer prices to increase 0.3% in February, bringing the annual rate down to 3.2% from 3.3%.

Treasuries have rallied since Trump’s inauguration as traders became more concerned that trade tensions could drag the US economy into recession. Meanwhile, sharp declines in US equities and government spending cuts have muddied the growth outlook.

Ten-year Treasury yields have fallen more than 50 basis points since peaking in mid-January, and most of the decline has been driven by so-called real yields. The rest came from lower inflation expectations, as measured by the break-even rate.

The Fed is expected to hold interest rates steady when officials meet next week. Bond traders are betting that the central bank will deliver three quarter-point interest-rate cuts this year, according to swaps, with the first move fully priced in June. That’s more than the two cuts that Fed officials projected in December.

But some in the market worry that sliding inflation expectations belie the risk of a resurgence in price pressures.

Goldman Sachs Group Inc.’s Jan Hatzius and colleagues this week cut their growth forecast for 2025 but raised their inflation outlook, saying that they now expect Trump to be more aggressive with tariffs than they previously envisioned.

That means the Fed will “want to stay on the sidelines and make as little news as possible until the policy outlook has become clearer,” they wrote in a note dated March 10, calling for two cuts this year.

Others argue that concerns about a US recession may be overblown. That would limit the room for the bond rally to continue.

“Treasury yields are definitely the corner of the market where we are seeing the economic worries play out,” said Baylor Lancaster-Samuel, chief investment officer at Amerant Investments Inc. But “pricing in three cuts appears too aggressive at this time.”