Interest-rate swaps showed traders wiped out what little remained of their wagers on Fed easing after unexpectedly strong US labor market data were released Friday.

The $31 trillion US government debt market "has grown far faster than the quantum of bank capital," creating a gap between the supply and demand for liquidity.

Federal Reserve Chair Jerome Powell said the central bank is cautiously monitoring consumer sentiment as tensions from the Iran war push energy prices higher, complicating efforts to bring inflation down to the Fed's target.

Federal Reserve Gov. Stephen Miran said it is too early to judge how U.S. involvement in the war with Iran will affect inflation and monetary policy.

Early industry reaction to the Federal Reserve's Basel III proposals points to potential capital relief for banks, though stakeholders say the complexity of the changes makes their overall impact unclear.

The Fed, European Central Bank and the Bank of England all held rates this week as policymakers grapple with the uncertain outlook for inflation and growth arising from the conflict in the Middle East.

Yields in Europe and the US climbed across maturities, with those on two-year US Treasuries — especially sensitive to expectations for Fed policy — higher by 11 basis points to 3.89%.

Federal Reserve Chair Jerome Powell, in a post-FOMC meeting Wednesday, said he intends to stay at his post until a successor has been confirmed, adding that he will remain on the Fed board until a Justice Department investigation into him is concluded.

As war in the Middle East sent oil prices soaring, stoking inflation fears, traders pushed back expectations for the Fed's next rate cut into next year.

The Federal Open Market Committee is widely expected to keep interest rates steady when it concludes its regular meeting tomorrow, but rising uncertainty about inflation in the wake of the Iran war is clouding the monetary policy outlook.

Traders are now fully pricing in the next quarter-point rate reduction in mid-2027, and a growing chorus of Wall Street economists have also pushed their calls for the next cut further out the calendar.

Investors will likely demand higher compensation for longer-dated bonds. Combined with the inflationary pressures from surging energy prices, it's a volatile cocktail for fixed-income investors.

This month's slump in Treasuries "is really a deleveraging dynamic," with traders liquidating long positions as they price in fewer Fed cuts and the risk of hotter inflation.

The $31 trillion market extended its losses on Friday, pushing yields on 10-year notes up by three basis points — and extending the rise this week to 22 basis points, the biggest such increase since President Donald Trump announced sweeping tariffs on US trading partners.

Meanwhile, the February US employment report to be released Friday is expected to show deceleration in job growth, potentially reviving the case for Fed rate cuts.

The bank exited the $1.95-trillion asset cap last year, but it had remained subject to the rest of the eight-year-old order.

Key measurements of small businesses' health remained stable in 2025, according to a new study by the 12 regional Federal Reserve banks. But those firms' optimism about the future reached its lowest point since 2020.

During a month when warning signs flashed alarms in other markets traders flocked to US government debt.

Futures spreads linked to the Secured Overnight Financing Rate, which closely track expected Fed policy, are becoming deeply inverted — a sign that traders are starting to price a more prolonged central bank easing cycle.

Federal Reserve Gov. Lisa Cook said AI could boost productivity, but warned the transition may raise unemployment and force difficult tradeoffs between inflation and jobs.