Inflation Report Cools Bets on Aggressive Fed Rate Cuts This Year

• Traders pulled back bets on Fed interest rate cuts before July after inflation report • Odds of a May rate cut dropped to 32% from 64%; less than 90 basis points of cuts expected in 2023 now • Short-dated Treasury yields surged, undermining bets on Fed cuts to end bond losses • Even a June rate cut was in doubt after the data, though it remains the most likely outcome • US Treasuries still offer income and diversification, not capital gains, with slowing inflation