Impact of May CPI Data on Bond Prices/Yields and Fed Rate Decisions
Key CPI Figures
Headline CPI:
MoM: 0.1% (vs. 0.2% forecast, prior 0.2%).
YoY: 2.4% (vs. 2.5% forecast, prior 2.3%).
Core CPI (ex-food/energy):
MoM: 0.1% (vs. 0.3% forecast, prior 0.2%).
YoY: 2.8% (vs. 2.9% forecast).
Bond Market Reaction
Bond Prices surged, and Yields Fell as lower inflation reduced expectations of prolonged high rates:
10-Year Treasury Yield: Dropped 6 basis points (bps) to 4.12% (lowest since March 2025) .
2-Year Treasury Yield: Fell 5 bps to 3.947% .
30-Year Yield: Declined to 4.95% .
Drivers: Softer inflation eased fears of Fed tightening, prompting a bond rally. Traders priced in Fed rate cuts by year-end.
Fed Rate Cut Implications
September Cut Odds Rise: Markets now assign a greater chance of a September rate cut by more than 25bps
July Meeting Likely Unchanged: The Fed is expected to hold rates at 4.25–4.50% on June 18 but may signal dovish intent in its updated dot plot.
Policy Dilemma:
Cooling Inflation: Supports cuts to avoid over-tightening.
Resilient Labor Market: May 2025 jobs growth (139K) and steady unemployment (4.2%) suggest the economy can handle delayed easing.
Tariff Risks: Fed remains cautious about potential inflation spikes from Trump’s tariffs, which could materialize in late 2025 .
Market Reactions
Equities: Nasdaq surged past 22,000, and S&P 500 hit a June high as stagflation fears eased .
Dollar Index (DXY): Initially dipped but later stabilized near 98.50 as traders weighed Fed caution against global risk sentiment .
Commodities: Gold rallied to $3,376/oz, while oil rose 2% on demand optimism .
Conclusion
The softer CPI data strengthened the case for Fed rate cuts in 2025, triggering a bond rally and equity gains. While a July cut remains unlikely, the Fed may use its June meeting to prepare markets for a September easing, contingent on inflation staying subdued and tariff impacts materializing as expected ,the CPI (July ) and Q2 GDP will be watched for confirmation.
#GOLD #DOLLAR
Key CPI Figures
Headline CPI:
MoM: 0.1% (vs. 0.2% forecast, prior 0.2%).
YoY: 2.4% (vs. 2.5% forecast, prior 2.3%).
Core CPI (ex-food/energy):
MoM: 0.1% (vs. 0.3% forecast, prior 0.2%).
YoY: 2.8% (vs. 2.9% forecast).
Bond Market Reaction
Bond Prices surged, and Yields Fell as lower inflation reduced expectations of prolonged high rates:
10-Year Treasury Yield: Dropped 6 basis points (bps) to 4.12% (lowest since March 2025) .
2-Year Treasury Yield: Fell 5 bps to 3.947% .
30-Year Yield: Declined to 4.95% .
Drivers: Softer inflation eased fears of Fed tightening, prompting a bond rally. Traders priced in Fed rate cuts by year-end.
Fed Rate Cut Implications
September Cut Odds Rise: Markets now assign a greater chance of a September rate cut by more than 25bps
July Meeting Likely Unchanged: The Fed is expected to hold rates at 4.25–4.50% on June 18 but may signal dovish intent in its updated dot plot.
Policy Dilemma:
Cooling Inflation: Supports cuts to avoid over-tightening.
Resilient Labor Market: May 2025 jobs growth (139K) and steady unemployment (4.2%) suggest the economy can handle delayed easing.
Tariff Risks: Fed remains cautious about potential inflation spikes from Trump’s tariffs, which could materialize in late 2025 .
Market Reactions
Equities: Nasdaq surged past 22,000, and S&P 500 hit a June high as stagflation fears eased .
Dollar Index (DXY): Initially dipped but later stabilized near 98.50 as traders weighed Fed caution against global risk sentiment .
Commodities: Gold rallied to $3,376/oz, while oil rose 2% on demand optimism .
Conclusion
The softer CPI data strengthened the case for Fed rate cuts in 2025, triggering a bond rally and equity gains. While a July cut remains unlikely, the Fed may use its June meeting to prepare markets for a September easing, contingent on inflation staying subdued and tariff impacts materializing as expected ,the CPI (July ) and Q2 GDP will be watched for confirmation.
#GOLD #DOLLAR
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.