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In the wake of the manufacturing data, Wall Street traders trimmed their bets on the first interest rate cut in June. They now see only a 57.3 percent chance of making it happen, down from about 70 percent the previous week, according to data from CME Group.
The Fed raised its key interest rate to the highest level since 2001 in order to slow the economy and hurt investment prices enough to control inflation. Expectations of upcoming cuts were a major reason why the Standard & Poor's 500 index rose more than 20 percent in the period from October to March. So was the case with a series of reports that showed that the US economy remains remarkably strong despite rising interest rates.
This week will provide more updates on the labor market and key areas of the economy, including data on job openings across the country and the strength of U.S. service companies. The headline will come on Friday, when economists expect a report to show that hiring slowed slightly last month.
A bit of a slowdown would be welcome on Wall Street, where the hope is that the economy will remain strong but not so strong that it pushes inflation higher. Inflation is lower than it was at its peak almost two years ago. But progress has become more difficult recently, with reports this year coming in hotter than expected.
Federal Reserve Chairman Jerome Powell said again on Friday that the central bank is waiting to get “more good inflation readings” before cutting interest rates this year. He has stood by his forecast of three interest rate cuts in 2024. Wall Street traders have come up with that as well, after previously anticipating more cuts this year.
On Friday, a report said inflation was behaving as expected, at least by the measure the Fed prefers to use. US bond and stock markets were closed that day.
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In the bond market, the yield on 10-year Treasury bonds jumped to 4.33 percent from 4.21 percent late Thursday. The two-year bond yield, which closely tracks the Fed's expectations, rose to 4.71 percent from 4.63 percent.
In stock markets abroad, the Nikkei 225 index in Tokyo fell by 1.4 percent after a quarterly survey conducted by the Bank of Japan on business conditions showed a decline in morale among major manufacturers for the first time in a year.
In China, stocks rose 1.2 percent in Shanghai after surveys indicated the country's manufacturing industry was strengthening.
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