Amid sticky inflation, Fed Chair Jerome Powell said that they would approach the monetary policy very cautiously. Analysts expect only two rate cuts instead of four, in 2024.
On Thursday, September 21, the US Treasury yields experienced an upward surge approaching levels not observed in over a decade. This movement followed the Federal Reserve’s announcement regarding interest rates and future guidance.
US Treasury Yield
The yield on the 10-year Treasury increased by approximately 9 basis points, reaching 4.435%, marking a new high last witnessed in 2007. Meanwhile, the 2-year Treasury saw an increase of over 3 basis points, bringing it to 5.152%, hovering near levels last seen in 2006.
It’s important to note that yields and bond prices have an inverse relationship, and one basis point represents 0.01%. On Wednesday, September 20, the Fed announced its decision to keep interest rates unchanged in the range of 5.25%-5.50%, in line with market expectations.
Nevertheless, policymakers also indicated their anticipation of another rate hike later this year, coupled with a prolonged period of higher rates. They are now projecting just two rate cuts for 2024, a significant shift from their June projection of four rate cuts for the same period.
During a press conference following the announcement, Federal Reserve Chair Jerome Powell emphasized the central bank’s ability to approach its monetary policy cautiously. Powell acknowledged that policymakers would prefer to observe further advancements in the battle against inflation. This is despite some alleviation of inflationary pressures.
In August, core inflation experienced its most substantial monthly rise of the year, driven by increases in consumer prices for housing, energy, and various other goods and services. According to data from the United States Department of Labor, the seasonally adjusted Consumer Price Index (CPI) increased by 0.6% in August. This marked a 3.7% rise compared to the same period in the previous year.
The Fed Releases Economic Projections
On Wednesday, the Federal Reserve released projections for different key economic indicators. The US central bank said that it expects the gross domestic product to increase by 2.1% this year. This is much higher than the central bank’s previous estimations.
At the same time, the core Personal Consumption Expenditures (PCE) price index, utilized to monitor the inflation rate, is currently anticipated to reach 3.7%, a decrease from the forecast made in June.
Thursday will bring the release of existing home sales data for August and the weekly initial jobless claims figures. In other news, following lower-than-expected inflation data earlier on Wednesday, the Bank of England is set to announce its latest decision on interest rates.