Bond market expects two more Fed rate hikes this year, then three cuts later.

The bond market is pricing in two more Federal Reserve interest rate hikes for the rest of 2026, followed by three rate cuts afterward. This reflects expectations that inflation remains high enough now to justify tightening but will cool later, prompting easing. The two-year Treasury yield, which is significantly above the current Fed rate, signals this cycle of hikes followed by cuts. For investors in short-term Treasury funds like SHY, this means higher yields now with potential price gains later as rates fall.