Treasury yields dip as traders eye Powell testimony and jobs data later in week

Fed Chair Jay Powell will deliver testimony to Congress on Wednesday and Thursday, which together with Friday’s publication of the February nonfarm payroll report may cement expectations regarding the likely trajectory of Fed policy.

Currently, markets are pricing in a 97% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on March 20th, according to the CME FedWatch tool.

The chances of at least a 25 basis point rate cut by the subsequent meeting in May is priced at 23.7%, down from 62.3% just a month ago. The chances of at least a 25 basis point cut in June are priced at 65.1%.

The central bank is expected to take its Fed funds rate target back down to around 4.57% by December 2024, according to 30-day Fed Funds futures.

U.S. economic updates set for release on Tuesday include January factory orders and February ISM service sector activity, both at 10 a.m. Eastern.

Central bank officials making comments include Fed Vice Chair for Supervision Michael Barr talking at noon and again at 2:15 p.m.

What are analysts saying

“Given the persistent inflationary pressures, accommodative financial conditions, steady economic growth, and robust labor market conditions, it is reasonable to expect a more hawkish tone from Federal Reserve Chair Jerome Powell. However, it’s challenging to envision a substantial departure from the recent guidance provided by other policymakers, said Stephen Innes,” managing partner at SPI Asset Management.

“Hence, Powell’s messaging reflects a balanced approach, acknowledging the need for vigilance on inflation while emphasizing the importance of supporting economic recovery. Any shift in policy stance would likely be gradual and cautious, considering the uncertainties in the economic outlook and the potential impact of monetary policy adjustments,” Innes added.