Last week, we talked about how even though the PCE report—the Federal Reserve’s favorite inflation gauge—came in as expected, investors were still not confident that this would be enough for the Fed to lower rates at this month’s FOMC meeting.
One of the underlying causes of this apprehension is the economic uncertainty surrounding the U.S. economy. As of today, investors are not really sure about what to expect when it comes to inflation and broader economic stability, which continues to weigh on market sentiment.
Adding to the uncertainty, 10-year U.S. Treasury yields remain elevated. It is currently at 4.442%, up by over 10% since April 2nd, also known as the start of Trump’s aggressive foreign trade policy.
This spike represents a symptom of the aforementioned economic uncertainty. As investors lose faith in lower interest, (meaning costlier borrowing costs), this gets reflected in the bond market. When investors think rates will stay high for longer, they demand higher returns on bonds to compensate for the risk. That’s why yields go up—the market is pricing in stubbornly high interest rates.
96% of Polymarket Investors Don’t Expect Rate Cuts in June
Polymarket, the platform where traders bet on real-world events, is overwhelmingly signaling skepticism toward a rate cut this month. As of today, June 2nd, 96% of Polymarket investors believe the Fed will hold rates steady, reinforcing the broader market sentiment seen in bond yields and cautious investor positioning.
After going through three consecutive rate cuts in the latter half of 2024, the Federal Reserve under Jerome Powell is yet to lower interest rates under the new administration. During the previous FOMC meetings, the Fed Chairman repeatedly emphasized how the Central Bank was in a good position to “wait and see” the effects of the new tariff policy.
With markets on edge and yields still elevated, the June 18 FOMC meeting could set the tone for the months ahead. Investors will be watching closely for any hints on policy shifts, but if Powell maintains his cautious stance, we could see continued hesitation across risk assets, with traders reluctant to make big moves until there’s more clarity.
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