The Treasury market continues to downgrade US inflation expectations, which suggests that the case is strengthening for a rate cut by the Federal Reserve.
The widely followed spread for nominal and inflation-indexed 5-year Notes fell to 1.53% yesterday (June 12), based on daily data published by Treasury.gov. That's the lowest implied inflation rate for this maturity since January 3. It's also a forecast that's well below the Fed's 2.0% inflation target and the core rate of consumer inflation, which rose at an annual 2.0% pace in May.
Although the inflation outlook is subdued and appears