A poorly-received 20-year Treasury auction earlier on Wednesday had added to the upward pressure on yields. The Treasury will auction $9 billion of 30-year TIPS at 1 p.m. Thursday.

There are a number of Fed officials due to speak Thursday, including Fed Vice Chair Philip Jefferson makes comments at 10 a.m., Philadelphia Fed President Patrick Harker talks at 3:15 p.m., Fed Gov. Lisa Cook and Minneapolis Fed President Neel Kashkari both speak at 5 p.m.

U.S. economic updates set for release on Thursday include weekly initial jobless benefit claims at 8:30 a.m. Eastern, S&P flash services and manufacturing PMIs for February at 9:45 a.m., and January existing home sales at 10 a.m.

Markets are pricing in a 95.5% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on March 20th, according to the CME FedWatch tool.

The chances of at least a 25 basis point rate cut by the subsequent meeting in May has fallen to 27.4%, down from 84% just a month ago.

The central bank is expected to take its Fed funds rate target back down to around 4.555% by December 2024, according to 30-day Fed Funds futures.

What are analysts saying

“Since the Fed pivot on December 13, consumers have become much more optimistic about the economic outlook,” said Torsten Slok, chief economist at Apollo. See chart below.

“Combined with record-high IG issuance, high HY issuance, and more IPO and M&A activity since December, it is not surprising that employment and inflation rebounded in January and jobless claims remain low.” he adds.

“The last mile is harder not because of some structural feature in the economy, but because of the Fed turning dovish too soon, triggering a reacceleration in growth and inflation. That is why the Fed will keep rates higher for longer than markets expect,” Slok concludes.