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CEO confidence for the economic outlook has improved, but the Treasury market is still pricing in rate cuts.
The Conference Board reports that confidence among CEOs “surged” to the highest level in a year. “CEO Confidence improved significantly in the first quarter of 2026, reflecting restored optimism among leaders of large firms,” said Dana Peterson, chief economist at the consultancy.
The rebound in CEO optimism implies that the case for more Fed rate cuts has weakened. The Treasury market, however, has yet to be persuaded. The policy-sensitive 2‑year yield traded down yesterday to 3.44% (Feb. 26), holding near the lowest level in nearly four years and slightly below the current 3.50%–3.75% Fed funds target range.
Fed funds futures are still pricing in a pause in rate cuts for the next two policy meetings, but anticipate another rate cut in June. Sticky inflation data and a steady, low jobless rate may complicate that forecast for a near-term cut. Markets will pay close attention to next week’s payrolls report for February, looking for new clues on where monetary policy is headed.
Another key variable is Kevin Warsh, the incoming Fed chair, who will take over the central bank’s leadership in May. Analysts are debating whether Warsh will tilt dovish to support President Trump’s demands for lower interest rates.
A complicating factor is the current nowcast for a rebound in economic growth for the first quarter. The Atlanta Fed’s GDPNow model, for example, is currently estimating that GDP will rise 3.1% in the first three months of this year, up sharply from Q4’s sluggish 1.4% increase.
The rise of artificial intelligence as an economic input is another variable that’s muddling the outlook. “The question is how is AI going to be inflationary and maybe the long end of the curve is sniffing all of this out,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “The only inflationary aspect of AI is the building out of data centers and the associated energy needs, and that is known.”
If CEOs are right and growth is re-accelerating, the Treasury market is mispriced. If the bond market is right, CEO optimism is a head fake. With Warsh stepping in and AI reshaping the inflation debate, investors won’t have to wait long to find out who blinked first.