A strange sight! Did every "big day" for data releases in the US this month deal a blow to expectations for US Fed interest rate cuts?

Since the beginning of this month, a rather unusual phenomenon has emerged in the US interest rate market:nearly every "big day" for economic data releases (including US Fed decision days) has dealt a blow to expectations for US Fed interest rate cuts...

On Tuesday, Biancore Search strategist Jim Bianco stated on social media that the next FOMC meeting with a probability of over 50% for an interest rate cut is now not expected until the September policy meeting—with the latest probability for a cut at the September meeting exceeding 60%.

However, less than two weeks ago, this probability was actually over 100%, implying that the market was betting on an earlier rate cut.

Bianco thus lamented that if this trend continues, the window for the next rate cut could soon be pushed back to December.

It is worth noting that a chart attached to Bianco's post indeed shows that since the beginning of this month, from the ISM Manufacturing PMI, non-farm payrolls, ISM Services PMI, and US Fed decisions, to the latest US April CPI data released last night, expectations for US Fed interest rate cuts have weakened on nearly every "big day"...

This is not to say that every set of data has been unfavorable for the rate cut outlook. For instance, the US April CPI data released yesterday, which came in below expectations, should theoretically have favored an earlier US Fed rate cut. However, rather unusually, even as Trump used the data to "press" Fed Chairman Powell, expectations for a rate cut still continued to weaken:

Data released by the US Bureau of Labor Statistics on Tuesday showed that the US CPI rose 0.2% MoM and 2.3% YoY in April, both below market expectations of 0.3% and 2.4%, respectively. The core CPI, excluding volatile food and energy prices, rose 0.2% MoM and 2.8% YoY, in line with expectations. The 2.3% YoY increase in CPI and the 2.8% YoY increase in core CPI are both the lowest since early 2021.

After the CPI data release, Trump once again pressured Fed Chairman Powell to take action to cut interest rates.

Trump wrote on the social platform Truth Social, "There is no more inflation! Prices for gasoline, energy, groceries, and almost everything else are all falling!!!" The Fed must lower interest rates, just as Europe and China have already done. What's going on with 'Mr. Delay' Powell? Isn't this unfair to a US that is about to take off? Let the rate cut happen—it would be wonderful!"

However, data from the interest rate futures market on Tuesday still showed that expectations for US Fed interest rate cuts continued to weaken—moving further towards only two rate cuts this year.

Will the pullback in CPI still fail to guarantee an interest rate cut?

Well, if it was understandable that several sets of hot US data released earlier this month did not support the US Fed's interest rate cut, why did yesterday's CPI data still fail to ignite market expectations for an interest rate cut?

In response, a data commentary by Nick Timiraos, known as the "New Fed Wire," may reflect the current market sentiment: that is, from the perspective of the future evolution trend of CPI, the US Fed still has little reason to change its wait-and-see stance.

Timiraos believes that these data are basically in line with the expectations of forecasters who closely track how the Labor Department measures inflation. If there is any good news, it is that the CPI data did not reach the upper limit of expectations—or worse.

Nevertheless, for the US Fed, the April inflation data is like a (final) piece of good weather news before a highly anticipated storm—the intensity of which remains uncertain. This CPI report may only make officials feel more at ease with their decision to cut interest rates by 100 basis points last year.

He believes that if it were not for the widespread tariff increases in April, this inflation data might have given the US Fed hope of resuming interest rate cuts soon. However, potential cost increases in the coming months are likely to keep the Fed on the sidelines until it can better determine whether the price increases are merely a one-off phenomenon.

Interest Rate Expectations "Change Daily"

Currently, an increasing number of market traders are abandoning their bets on a US Fed interest rate cut.

Open interest data from the Chicago Mercantile Exchange (CME) on Tuesday confirmed that several previously large bets on an interest rate cut have been closed out—one of which had a target price of up to four 25-basis-point interest rate cuts this year, and this closure may have resulted in losses of up to $10 million. Swap contracts linked to the US Fed's policy meetings currently reflect an interest rate cut of just over 50 basis points this year, compared to expectations of more than 100 basis points last month.

"The current news flow on tariffs, trade agreements, geopolitical tensions, and domestic fiscal policy is changing so rapidly that it is enough to make people adjust their expectations for the target meeting time of a US Fed interest rate cut (or hike) every day," Jefferies strategist Thomas Simons wrote in a research report.

As traders exit their bets on a dovish stance by the US Fed, major Wall Street banks are also rapidly reshaping their expectations for the Fed's policy.

Goldman Sachs and Barclays now both expect the first interest rate cut of the year to occur in December rather than the previously expected July, while Citi has adjusted its expected timing of the interest rate cut from June to July, and JPMorgan Chase has also postponed its interest rate cut expectations from September to December.

"The potential impact of tariffs, along with persistent inflationary pressures in interest rate-sensitive sectors such as housing and automobiles, suggests limited room for interest rate cuts. Therefore, patience remains the US Fed's best course of action," Simons said.

Judging from the options activity at the far end of the Treasury curve, the demand for protection against rising yields has been increasing.In Tuesday's trading, multiple bets were placed on the 10-year yield rising to nearly 5% in the coming weeks, about 50 basis points above the current level.

In the spot market, bearish sentiment toward bonds is also heating up. JPMorgan's US Treasury client survey released on Tuesday showed that outright short positions rose to their highest level in seven weeks, while net long positions shrank to their lowest level since February 10.