The number of people betting on a Fed rate cut is decreasing.

Currently, the market's expectation for a rate cut by the Fed is receding.

According to Tradeweb's data on Tuesday, derivative market pricing shows that investors now expect the Fed's target interest rate to reach 5% by the end of the year, up from last month's expectation of 4%.

Economists point out that high interest rates in the US will last longer. Financial historian Jim Grant believes that high interest rates may last for a generation, and Tianfeng Securities also believes that the Fed will maintain restrictive high interest rates for a longer period of time.

This will have an impact on US stocks and bonds, and the decline in rate cut bets will push short-term US bond yields higher, threatening the rise of US stocks this year.

Low interest rate era difficult to return

In the short term, last Friday's non-farm payroll exceeded expectations, but instead of resolving the Fed's internal interest rate hike differences, it raised market expectations for a rate hike.

Rich Steinberg, chief market strategist at Colony Group, believes that a tight labor market means the Fed may skip a rate hike this month but consider another hike at its next meeting this summer.

In the long term, Jim Grant, founder of the well-known financial market publication Grant's Interest Rate Observer, predicts that there will be a "long-term high interest rate cycle" in the future. As interest rates gradually rise, there may be a "bond bear market lasting a generation."

Tianfeng Securities also pointed out in its latest research report, "Preparing for Long-Term High Interest Rates," that the US economy is unlikely to experience a recession, and core inflation is unlikely to return to the target level of 2% in the future. The Fed's monetary policy target will anchor inflation, and there is no need to cut interest rates. The Fed will maintain restrictive high interest rates for a longer period of time.

Stocks and bonds may be impacted by high interest rates

The decline in rate cut bets has pushed short-term US bond yields higher, with the two-year yield closing at 4.480% on Monday, up from 4.064% at the end of April. However, this rise has not yet affected the stock market. The sharp rise in yields last year hit the stock market, causing the S&P 500 index to fall nearly 20%.

However, some market participants believe that although the economy and corporate profits continue to show resilience, higher rates in the second half of the year may weigh on the US stock market.