Fed’s Rate Cut Triggers Market Moves

What’s going on here?

The Federal Reserve cut interest rates by 50 basis points on Wednesday, making waves across US Treasury yields.

What does this mean?

This rate cut marks a major shift in monetary policy, aiming to bolster the economy amidst mixed signals. After the cut, 10-year Treasury yields jumped 2.4 basis points to 3.768% on Thursday – their highest in about two weeks – while two-year yields edged up by 1.2 basis points to 3.616%. However, the 30-year Treasury yield dipped by 0.6 basis points to 4.068%, after peaking at a two-week high.

Why should I care?

For markets: Navigating the waters of uncertainty.

The yield curve steepened after the announcement, with the spread between two-year and 10-year yields hitting 14.7 basis points at its widest – before narrowing to 11.1 basis points. This signals market optimism about future economic conditions, spurred partly by strong economic data like better-than-expected jobless claims and robust retail sales.

The bigger picture: Global economic shifts on the horizon.

Traders are projecting significant rate cuts, with futures indicating 71 basis points in cuts by year-end and about 187 basis points by September 2025. However, experts like Subadra Rajappa from Societe Generale warn that the market might be too bearish on inflation expectations, while Bryce Doty from Sit Fixed Income Advisors notes that demand for higher yields shows investor anxiety about continuously falling rates.

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Originally Posted September 20, 2024 – Fed's Rate Cut Triggers Market Moves