Key facts
- Bond traders continue to price in a Federal Reserve interest rate hike by December.
- The core consumer price index increased 0.2% from April, below the 0.3% consensus forecast.
- The rate on two-year Treasury notes, sensitive to monetary policy, stood at 4.11%.
- The US dollar weakened following the release of the inflation data.
Bond traders are maintaining their expectations for a Federal Reserve interest rate hike by the end of 2026, despite a recent soft US core inflation reading. The core consumer price index, which excludes volatile food and energy prices, rose 0.2% from April, falling short of the 0.3% consensus forecast among economists. This data provides the Federal Reserve with some flexibility, potentially easing immediate pressure for rate increases.