U.S. Treasury Yields Jump After Fed Rate Cut, Fewer Cuts Expected
U.S. Treasury yields surged on Wednesday after the Federal Reserve announced its latest interest rate cut, but signaled fewer could be on the horizon. The yield on the 10-year Treasury climbed nearly 12 basis points to 4.504%, and has hovered around the key 4.5% level in afternoon trading. The 2-year Treasury yield surged more than 10 basis points to 4.348%.
The Fed announced another cut to interest rates on Wednesday with a decrease of a quarter percentage point, marking the Fed’s third straight reduction. However, the central bank also forecast fewer rate reductions in the year ahead, predicting two cuts, down from four previously. The Fed also increased its inflation forecast slightly.
Despite the rate cut, the likelihood of another cut at the Fed’s next policy meeting in January slipped to under 10%, according to fed funds futures trading tracked by the CME FedWatch tool. The Fed’s decision has entered a new phase of monetary policy, the pause phase, said Jack McIntyre, portfolio manager at Brandywine Global. The longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut, leading to more volatile financial markets in 2025.
The Fed’s decision comes after the European Central Bank last week cut rates by 25 basis points for the fourth time this year. The Bank of England is set to announce its own rate decision on Thursday.
