Inflation Jitters Grip Treasury Market Ahead of CPI Release
The Treasury market is noticeably anxious as we approach this week's inflation report, especially given recent stronger-than-expected payrolls data. Bond traders are increasingly skeptical about the Fed's ability to achieve its inflation target, which suggests that there's a higher likelihood of yields rising ahead of Wednesday's CPI release.
Although the rate of consumer-price increases is expected to slow down, even the most optimistic forecasts predict annual inflation to remain above 3%. Rising oil and commodity prices, along with supply chain disruptions, are exacerbating concerns, potentially reversing the downward trend in goods prices that has helped keep overall costs in check.
This explains why two-year breakeven rates have risen to approximately 30 basis points below February's CPI. If inflation indeed hovers around the 2.85% mark as indicated by TIPS, it raises doubts about the Fed's ability to meet its target within the expected timeframe. This uncertainty casts doubt on policymakers' ability to implement the anticipated six rate cuts by the end of next year.
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