The yearly inflation rate in the United States stood at 3.5% in March, according to the latest report by the Bureau of Labor Statistics on Wednesday. Inflation increased compared to February’s annual rate of 3.2% and exceeded analysts’ predictions.

Month-on-month, the consumer price index (CPI) rose by 0.4%. Over half of the increase was attributed to the rise in shelter and gasoline prices. Core inflation, excluding food and energy, stood at 3.8% year-on-year, with the core CPI rising 0.4% compared to February.

The U.S. central bank has a 2% inflation target. The measures it tracks for monetary policy are running considerably below the CPI rate.

Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% on a year-on-year basis.

Though the annual increase in consumer prices has declined from a peak of 9.1% in June 2022, the disinflationary trend has slowed in recent months.

Following last week’s stronger-than-expected job growth in March as well as a drop in the unemployment rate to 3.8% from 3.9% in February, some economists have pushed back rate cut expectations to July. Others still believe the Fed will move in June. A minority see the window for rate cuts closing.

Fed Chair Jerome Powell has repeatedly said that the U.S. central bank is in no rush to start lowering borrowing costs.

Financial markets saw a roughly 56.0% probability of the Fed cutting rates at its June 11-12 policy meeting, according to CME’s FedWatch Tool. The Fed has kept its policy rate in the 5.25%-5.50% range since July. It has raised the benchmark overnight interest rate by 525 basis points since March, 2022.

US Treasury yields surge with inflation back to 3.5%

United States Treasury yields soared on Wednesday immediately following the CPI report for March, which indicated the Federal Reserve still had work to do to reach its inflation target of 2%. The CPI rose by 3.5% compared to March 2023, exceeding expectations and tanking the stock markets.

The return on the two-year rose by 18.4 basis points to 4.931% at 8:47 am ET, while the 10-year note jumped by 12.7 basis points to 4.497% a minute later, and the return on the 30-year bond added 8.3 basis points to 4.58%.