What is the Current State of the US Economy? How Many Interest Rate Cuts Will Come This Year? Experts Evaluated

Question

U.S. Treasury bonds continued their rise today following data showing that the world's largest economy contracted in the first quarter and a strong government bond auction.

Developments have strengthened investors' expectations that the FED will make two rate cuts by the beginning of 2026.

The intense demand for the new bond issuance by the Treasury Department showed that the "sell" pressure on U.S. assets is temporary. This strong interest in bonds also supported the buying wave that has been ongoing for the past three days.

The recently published GDP revisions showed that growth has slowed due to the weakness in consumer spending. This situation led to a decrease in bond yields while causing the markets to maintain expectations that the FED would cut rates in October. In futures, a total rate cut of 55 basis points is priced in until January 2026.

Societe Generale's Head of U.S. Interest Rate Strategies, Subadra Rajappa, stated, "The direction of the bond market will be shaped by the impact of uncertainties on growth. The FED will remain on hold as much as possible. Two priced rate cuts for this year seem reasonable."

On the other hand, White House officials downplayed the court's blocking of President Donald Trump's comprehensive tariff plan, while investors were seen turning their attention to economic data. Ongoing unemployment claims reached their highest level since November 2021, indicating a weakening in the labor market.

Oxford Economics analyst John Canavan said, "Some details in the GDP data announced this morning and the rising unemployment claims were positive for the bond markets."

The two-year Treasury bond yields fell by about five basis points to 3.94%, while the ten-year bond yields decreased by five basis points to 4.42%. At the same time, the dollar weakened.

*This is not investment advice.

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