Investors are facing a dilemma as the chance of U.S. interest rate reductions fades, leading to fears of rising inflation.

The Federal Reserve’s policy easing is expected to decline quickly, as positive economic reports suggest that lowering borrowing costs too soon may reappear inflation.

Strong consumer price data has made these concerns even more urgent.

Futures markets now expect rates to fall by just 40 basis points this year, as opposed to the 150 basis points at the beginning of 2024.

Market investors are reallocating their portfolios amid a weeks-long selloff that has crushed Treasury prices, while bond investors are already experiencing pain.

Benchmark 10-year rates crossed 4.5% on Wednesday, reaching a peak not seen since November.

Many analysts now anticipate two rate cuts this year rather than three or four, as they hurried to update predictions in an effort to temper expectations of rate decreases. Longer-term U.S. government bond yields are “too low, given heavy Treasury supply,”