US Treasury bonds rallied after new economic indicators pointed to slower growth and easing inflation, reinforcing expectations for two Federal Reserve interest-rate cuts in 2025.
Yields on both two-year and 10-year Treasuries fell by roughly 10 basis points as traders adjusted their outlook. Market pricing now includes the possibility of rate cuts as early as September, even though several major Wall Street firms have recently delayed their forecasts for Federal Reserve action.
Despite the softer economic signals, concerns about the US fiscal backdrop persisted. Proposals for Republican tax cuts and the country’s elevated government debt levels could place upward pressure on inflation and push long-term interest rates higher over time.
Investors have been weighing the tug-of-war between the short-term signals from incoming data and longer-term fiscal risks. Slower activity and cooling inflation support expectations that the Fed can lower rates next year, but fiscal policy decisions and debt dynamics remain key vulnerabilities that could alter the trajectory of yields and inflation down the road.
Market participants will continue to monitor upcoming economic reports, Fed communications, and fiscal developments for clues about the timing and magnitude of future rate moves. Until there is clearer policy direction or a shift in fiscal outlook, bond markets are likely to remain sensitive to each fresh data point that bears on growth, inflation, and the Federal Reserve’s path.