Market Braces for Impact of US Inflation Data on Future Fed Easing Bets

The US inflation report next week could help settle whether the market has correctly pegged the near-term trajectory for interest rates. Investors have become more convinced the Federal Reserve will cut rates in the second half to ward off an economic downturn. Such bets have pushed bond yields lower, supporting the giant tech and growth stocks that hold sway over broad equity indexes. The central bank’s more restrictive rate outlook sees borrowing costs remaining around current levels through 2023. The bond market, the Fed’s preferred recession indicator plunged to fresh lows in the past week, bolstering the case for those who believe the central bank will soon need to cut rates.