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Policy rate expectations and Treasury yields eased from their late-April’s highs on softer employment and inflation data released recently.

In a context of a strong economy and a lack of further progress on inflation in recent months, the Fed unequivocally signaled that it can be patient and will give the restrictive monetary policy stance more time to do its job before deciding to cut rates.

Financial markets’ expectations on the future path of monetary policy have shifted significantly. While it will evidently take longer than expected to gain confidence on the path to 2%, the Fed is unlikely to rule out rate cuts this year.

A third-in-a-row 0.4% MoM core CPI inflation reading for March following strong jobs reports added to a series of hot data that suggest a rate cut soon is off the table amid increased odds for less than three rate cuts this year.

The Fed appears to have achieved a better balance of risks around its dual mandate of price stability and maximum employment. This suggests that it will soon begin to normalize its policy stance, probably in June, although it will proceed cauti…

The Fed will likely convey that it continues to look for “more good data” before feeling enough confidence to begin cutting rates as the strength of economic activity has extended and shelter inflation has surprised to the upside.

While the labor market is still on track to a better supply-demand balance and wage costs cool down, two consecutive 0.4% MoM core inflation readings will likely continue to push the Fed to convey it needs “more good data” to gain greater confidence on the disinflationary process.

Doors seem to have closed to the possibility of a rate cut in March. Fed’s need for “more good data” to achieve “greater confidence” of the ongoing disinflation process has been recently supported by recent strong job creation data and signals …

The Fed is moving further away from its long-held tightening bias as it explicitly conveyed that “the risks to achieving its employment and inflation goals are moving into better balance.”

To some extent, the recent adjustment in market expectations and its corresponding impact on broad financial conditions give the Fed some room to continue to convey that the next move will be a rate cut without risking an over-easing of financi…

Even though the recent bond rally appears to have come to a halt, both mid- and long-term Treasury yields have been pricing in the start of a rate-cut cycle for some time.

Not a single Fed official now forecasts that the fed funds rate needs to rise further from its current level in the updated Summary of Economic Projections (SEP) and dot plot.