The market is betting on a 50/50 chance of the Federal Reserve cutting interest rates three times this year.

U.S. Treasury prices rose in response to lower-than-expected inflation figures released on Friday, fueling investor expectations for three Federal Reserve rate cuts in 2026. The yield on the two-year U.S. Treasury note, most sensitive to central bank policy changes, fell as much as 6 basis points to 3.40%, a new low since October last year, before recovering slightly. Following the data release, traders priced in a rate cut of approximately 63 basis points this year—implying a roughly 50% probability of a third 25-basis-point rate cut before the end of the year, on top of the two already priced-in cuts, compared to 58 basis points priced in on Thursday. Earlier this week, traders had already stopped fully pricing in a 25-basis-point rate cut mid-year in response to the January non-farm payroll data, postponing their bets to July. Wall Street banks that had previously predicted a March rate cut have also pushed their expectations back to later in 2026. (Jinshi)