Investors are further reducing their bets on interest rate cuts by the US Federal Reserve this year, as strong economic data boosts conviction that the central bank will need to keep borrowing costs higher to cool inflation.

Markets are pricing in two quarter-point rate cuts by the Fed in 2024 and only a 50 per cent likelihood of a third, in a drastic reversal from the start of the year when between six and seven cuts were expected.

“We’re having a number of clients ask us, ‘why is the Fed going to cut rates at all?’ That’s really picked up over the last month or so,” said Evan Brown, portfolio manager and head of multi-asset strategy at UBS Asset Management. “With the economy this strong, policy isn’t as restrictive as the Fed thinks it is.”