Bond Market Selloff and Fiscal Debt Spiral Risk
Key Questions
What is Dallas Fed President Lorie Logan calling for?
Logan explicitly advocates modestly higher rates, citing persistent trimmed mean and core PCE at 3.4%. She views the latest PCE surge and business pricing plans as reinforcing the need for tighter policy.
What rate hike path does Bank of America recommend?
BofA's research team projects 75 basis points of rate hikes over the next 12 months, double current market pricing. This reflects resilient consumer spending and core PCE tracking near 3.3%.
What position has SMBC economist Joe Lavorgna taken?
Lavorgna calls for the Fed to raise rates this year, aligning with other hawkish voices. Market-implied probabilities have risen to 65% for hikes by September.
What did Kevin Warsh indicate about Fed policy?
Warsh hinted at rate hikes, referencing AI-driven price impacts and second-round effects. He described internal Fed discussions as a family fight over the inflation outlook.
How have inflation expectations changed in the UMich survey?
One-year expectations eased to 4.2% and longer-term to 3.3%, providing a modest counterpoint to hawkish data. This has not shifted the near-term policy outlook.
What does the New York Fed survey reveal about business pricing?
Nearly half of firms that paid tariffs plan additional price increases, some extending six months or more. This contradicts views of tariffs as purely one-time adjustments.
What is the current market-implied probability of rate hikes?
Traders see about a 15% chance of a July hike and 65% by September. These odds have risen in response to hawkish Fed comments and inflation data.
How does the latest PCE data influence the Fed outlook?
The PCE surge to 4.1% and core readings above target have strengthened calls for higher rates. Officials now emphasize broad-based inflation risks beyond transient factors.
Long-term Treasury yields remain structurally elevated near 5.3% for ten-year notes and 5.6%–5.7% for thirty-year bonds, although equity selloffs can trigger temporary safe-haven rallies. Fiscal deficits, refinancing needs, shorter maturities and weak credibility continue to threaten high term premiums and mortgage affordability.