Investors ponder economic outlook as U.S. Treasury yields decline
Economy

Uncertainty Surrounds Federal Reserve’s Cutting of Interest Rates and Its Impact on Bond Yields and Prices

The relationship between yields and prices is inversely proportional, meaning that as yields decrease, prices increase. One basis point equals 0.01%, so when the yield of a treasury bond decreases by a basis point, the price of the bond increases.

Federal Reserve officials have expressed uncertainty about how often and when they will cut interest rates this year. This uncertainty has caused investors to closely monitor their comments and data to gauge the outlook for the economy. Some policymakers believe that there may be fewer than three rate cuts this year, as previously forecasted.

Recent data shows that durable goods orders rose more than expected in February, while consumer confidence declined in optimism about the economy. Fed Governor Christopher Waller is expected to give remarks on Wednesday, and important data such as weekly initial jobless claims, final reading of US GDP for the fourth quarter and consumer sentiment insights will be released on Thursday.

The most anticipated data of the week is set to be released on Friday, including personal consumption expenditures price index – the Fed’s preferred inflation measure – as well as personal income and spending figures. Since markets are closed for Good Friday, traders’ reactions to this data will have to wait until next week.

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