The Federal Reserve is about to "change leadership," and the world is closely watching a key economic data point from the United States

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What will be the impact of AI · Kevin Woorge taking over as Federal Reserve Chair on interest rate trends?

Investors are awaiting a key inflation report to assess how long the Fed under Kevin Woorge can hold steady amid rising oil prices caused by turmoil in the Middle East.

As conflicts between Iran and the U.S. in the Strait of Hormuz threaten to break a month-long ceasefire, the bond market is affected by oil prices. The 30-year U.S. Treasury yield touched 5.03% last Monday, the highest since July.

Since the conflict erupted in late February, traders have not only priced out the possibility of a Fed rate cut but have also begun betting that Woorge, who is expected to succeed Powell after his term ends this week, may need to raise rates next year. Interest rate swaps indicate traders expect about a one-in-three chance of a rate hike by April 2027.

An increasing number of Fed officials suggest that the next move could be either a rate cut or a rate hike. The risk is that, against the backdrop of a stable labor market and a loosening financial environment, strong inflation data could boost market expectations for further price increases, forcing the central bank to act.

Economists expect the inflation report to show that the Consumer Price Index (CPI) rose 3.7% year-over-year in April, the largest increase since 2023. Core CPI, excluding oil and food prices, is expected to rise 2.7%, the highest since September.

The bond market is “driven by expectations of rising inflation,” said Ruben Hovhannisyan, fixed income portfolio manager at TCW Group.

But he added that he remains optimistic about bonds, as the inflation caused by rising oil prices may be temporary, and a cooling labor market could prompt the Fed to restart rate cuts later this year.

In addition to the inflation report, this week’s auctions of 3-year, 10-year, and 30-year U.S. Treasuries will also test investor interest.

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