The Treasury yield curve hit 10.2 points, signaling that more monetary easing is on the way. What did the market think after the Fed’s important decision?
The yield curve of the US Treasury bonds reached its steepest level since July 2022 on Wednesday, after the Federal Reserve cut interest rates interest rates by 50 basis pointsa larger-than-usual reduction as the central bank grapples with a weakening labor market.
The widely followed spread between two- and 10-year yields reached as high as 10.2 bp and then settled at 8.6 bp. A steeper curve suggests that further monetary easing is on the horizon. Against this backdrop, the 10-year yield rose 4.7 basis points to 3.688%, while the 30-year rate rose 6.5 basis points to 4.016%. At the short end of the curve, the two-year yield was virtually unchanged at 3.594%.
Market sentiment after Jerome Powell’s speech
The Fed said it has gained greater confidence that inflation is moving sustainably toward its 2% target and that The risks between prices and employment are more or less balanced.
Before the rate result, borrowing futures were looking for a 50bp cut, even as most Wall Street economists were anticipating a 25bp move.
“I think they really want to show that they are relevant and that they are in control. “They certainly have room to do so because there is still plenty of room to cut rates after this,” said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta.
Fed Dollar Jerome Powell.jpg
Courtesy: Crypto News
“They are cutting back when the economy is still showing signs of being quite strong. And this is most likely because the fight against inflation appears to be resolved,” he added.
The central bank’s forecast, or so-called “points,” showed rates falling to 4.375% by the end of 2024, suggesting a further reduction of about 50 basis points this year. The year-end forecast for 2025 showed further cuts of 100 basis points and a final 50 basis points in 2026 to end in a range of 2.75%-3.00%.
At a news conference, Fed Chairman Jerome Powell noted that the central bank is in no rush to cut rates, adding that The Fed will move as quickly or as slowly as it sees fit.
Source: Ambito
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