The market positioning suggests that a no change in the Fed’s policy rate is nearly fully priced in, especially after the data from the US showed that the Consumer Price Index rose 4% on a yearly basis in May, down sharply from the 4.9% increase recorded in April. According to the CME Group FedWatch Tool, the probability of a 25 basis points Fed rate hike in June is less than 10%.
The benchmark 10-year US Treasury bond yield dropped below 3.7% with the initial reaction to the US inflation data but recovered toward 3.8% on Wednesday. On Thursday, the US Census Bureau will release Retail Sales report for May. The Fed’s Industrial Production will also be featured in the US economic docket alongside the weekly Initial Jobless Claims data this week. On a monthly basis, the Producer Price Index in the US declined 0.3% in May. The annual producer inflation fell to 1.1% from 2.3% in April.
In March, the Fed’s SEP showed that the median view of the policy rate at end-2023 stood at 5.1%, matching December's projection. The publication further revealed that policymakers saw a slower Gross Domestic Product growth in 2023, alongside lower unemployment and less progress on inflation than they saw in December. Finally, projections pointed to a total of 75 bps of rate cuts in 2024.