Cut Expectations

• The Federal Open Market Committee met on March 17–18, 2026, noting uncertainty in the economic outlook with options markets pricing a 30% probability of rate hikes early next year. • Broad equity indexes declined sharply while S&P 500 one-month volatility rose, driven by investor concerns over Middle East developments weakening confidence. • Financing conditions stayed restrictive for households, small businesses, and commercial real estate due to high costs and tight underwriting, though corporate debt spreads remained narrow.

• The 10-year Treasury yield declined 18 basis points to 3.82% following the cooler-than-expected inflation reading, marking the steepest single-day drop in three months and reflecting a significant repricing of Fed rate cut probability. • Bond investors rushed into longer-duration securities as real yields compressed, with the 2-year Treasury sliding 12 basis points to 3.45%, indicating heightened expectations for near-term monetary easing. • The yield curve steepening trend accelerated, with the 10-2 spread widening to 37 basis points, suggesting market consensus that the Fed will begin cutting rates this spring while maintaining a measured approach to further reductions.

US Treasury yields increased during the week of March 13, 2026, after oil prices briefly exceeded $100 per barrel, prompting investors to delay expectations for Federal Reserve rate cuts into later 2026. Markets now price in only one rate cut for the year, down from prior forecasts, as February CPI data appears outdated amid March's energy inflation spike. The bond market showed unhinged behavior amid fears of higher headline inflation, slower growth, and stagflation risks from sustained high oil prices. A prolonged oil elevation could pair high inflation with unemployment rises, complicating Fed policy.