US Treasury yields jumped on Wednesday after the Federal Reserve announced its latest interest rate cut, but indicated there may be a smaller cut on the horizon.
Return on Treasury for 10 years The index rose more than 11 basis points to 4.498%, hovering around the key level of 4.5% in afternoon trading. the Treasury for two years The yield rose more than 10 basis points to 4.346%.
Yields and prices have an inverse relationship. One basis point is equivalent to 0.01%.
The Fed announced Another interest rate cut On Wednesday, a decrease of a quarter of a percentage point. The move, which was widely expected by market participants before Wednesday, marks the Fed's third straight cut.
However, the central bank also expects smaller interest rate cuts next year, anticipating two cuts, down from four previously. The Federal Reserve also raised its inflation forecasts slightly.
“With today’s action, we have lowered the interest rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Powell said during the press conference that followed the announcement on Wednesday. “We can therefore be more cautious as we consider further adjustments to our interest rate.”
In fact, the likelihood of another cut at the Fed's next policy meeting in January has fallen to less than 10%, according to trading in federal funds futures tracked by the bank. CME FedWatch tool.
“The Fed has entered a new phase of monetary policy, the pause phase,” said Jack McIntyre, portfolio manager at Brandywine Global. “The longer this lasts, the more likely it is that markets will have to equally price a rate hike versus a rate cut. Policy uncertainty will increase volatility in financial markets in 2025.”
The Fed's decision comes after the European Central Bank last week cut interest rates by 25 basis points for the fourth time this year. The Bank of England is scheduled to announce its interest rate decision on Thursday.
