The Fed is expected to cut interest rates twice this year, according to two separate Reuters polls.
The first rate cut under Kevin Warsh, who is expected to take over as Fed chairman, is expected to occur in June, according to the survey results.
Economists' median forecast is for the Fed to cut rates a total of two times in 2026. These expectations for interest rate cuts are already reflected in short-term bond yields. Forecasts for the rate-sensitive two-year U.S. Treasury bond yield suggest a decline to 3.45% from 3.50% at the end of April, and a further decline to 3.38% at the end of July.
This outlook suggests that expectations for rate cuts are already priced into the market.
Long-term U.S. Treasury yields are expected to remain flat in the near term, but are expected to rise in the second half of the year due to inflationary pressures and concerns about the Fed's independence, the study said.
The median expected yield on the benchmark 10-year Treasury note is for it to rise to 4.29% within a year. This exceeded last month's forecast of 4.20%.
Of the 37 fixed income strategists surveyed, 21 (about 60%) believe it will be difficult to achieve significant reductions in the Fed's $6.6 trillion balance sheet due to President Trump's tax cuts and the large-scale bond issuance planned to fund spending plans in coming years.
This view suggests that the balance between fiscal and monetary policy may become even more complex in the future.
*This is not investment advice.
