Inflation is clearly abating and the Federal Reserve seems primed to start cutting policy rates this year. But even if the economy develops as everyone hopes, there’s a good chance that bond yields will rise from here — at least initially. That’s because there are still elevated recession odds that need to be squeezed out of the market.

As of the time of writing, fed funds futures are fully priced for six rate cuts in 2024 to a target policy range of 3.75%-4%, with a 30% chance of seven. In reality, though, that doesn’t mean that the typical market participant expects that many cuts in a base-case scenario. The Fed’s own Summary of Economic Projections last month suggested that the median policymaker expects three cuts to 4.75%, while the typical forecaster surveyed by Bloomberg expects about four.