US Bond Market’s 2.4% Gain at Stake as Fed Reassesses Economic Outlook

The Treasury market has rallied significantly this year, delivering a 2.4% return and pushing yields to 2025 lows as investors respond to a weakening equity market and rising trade tensions. Bond investors are now awaiting Federal Reserve Chair Jerome Powell’s comments after Wednesday’s meeting, hoping for signs that this positive momentum will continue.

Market sentiment has recently shifted due to President Trump’s tariff policies and international retaliation, creating a mixed economic outlook with slower growth predictions alongside renewed inflation concerns. Despite Powell’s recent claim that “the economy’s fine,” investors will closely analyze his remarks and the Fed’s updated economic projections (the “dot-plot”) for any shifts in this position. This uncertainty shows in futures markets, where traders have reduced their expectations from three to just two quarter-point rate cuts by the end of 2025. Increased hedging suggests some investors believe rates could remain unchanged through mid-year. BNP Paribas economists have taken an even more cautious stance, suggesting that inflation from tariffs and trade disputes might prevent the Fed from cutting rates at all in 2025.