According to two separate polls conducted by Reuters, the Fed is expected to cut interest rates twice this year.
According to the survey results, the first interest rate cut is expected to come in June, under Kevin Warsh, who is anticipated to take over as FED chairman.
The median expectation among economists is that the Fed will implement a total of two interest rate cuts in 2026. These interest rate cut expectations are already reflected in short-term bond yields. Forecasts for the yield on the interest-sensitive 2-year US Treasury bond suggest a decline from 3.50% at the end of April to 3.45%, and a further drop to 3.38% at the end of July.
This outlook suggests that expectations of interest rate cuts are already priced into the markets.
According to the survey, long-term US Treasury bond yields are expected to remain flat in the short term, but are projected to rise later in the year due to inflationary pressures and concerns about the Fed’s independence.
The median forecast for the yield on the 10-year benchmark bond is that it will rise to 4.29% within a year. This is higher than last month’s expectation of 4.20%.
Of the 37 bond strategists surveyed, 21 (approximately 60%) believe that the large-scale Treasury bond issuance planned to finance Trump’s tax cuts and spending plans in the coming years will make it difficult to achieve a significant reduction in the Fed’s $6.6 trillion balance sheet.
This view suggests that the balance between fiscal and monetary policy may become even more complex in the coming period.
*This is not investment advice.