The publication of the May consumer price index report on Friday may help to clarify the picture, with the outcome potentially determining whether the benchmark 10-year Treasury Yields retreats further or retests May’s high by pushing back over the psychologically important 3% threshold. It came close on Friday when the yield jumped as much as 8 basis points to 2.98 percent after the monthly employment data confirmed the economy’s resilience.
Swaps contracts are pricing in certainty that the Fed would raise its target rate by a half-percentage point at its June and July meetings, owing to growing wages and a tight job market. However, there is still no clear consensus on whether policymakers will maintain this pace at the September meeting or make a quarter-point hike, which they may do if they are concerned about pushing the economy into a recession or believe inflation is on the decline.
According to Kathy Jones, chief fixed-income strategist at Charles Schwab & Co., which manages over $7 trillion in assets, such expectations should remain in control as long as the Fed keeps its commitment to keeping the consumer-price rise in check. She predicts half-point raises in June and July before the Fed begins to scale down its rate hikes, while she believes a generally strong CPI data will fuel speculation of a 50-basis-point boost in September.