Yields on most U.S. government debt remained broadly lower on Wednesday after Federal Reserve policy makers delivered their 11th rate increase since March 2022 and laid out the factors that might lead to more hikes.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.828%
slipped 2.1 basis points to 4.870% from 4.891% on Tuesday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.853%
retreated 2.8 basis points to 3.883% from 3.911% on Tuesday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.926%
fell 1.8 basis points to 3.934% from 3.952% on Tuesday.
What’s driving markets
As widely expected, the Fed raised its benchmark interest rate target by 25 basis points to a 22-year high of between 5.25%-5.5%. In a post-meeting statement, policy makers hinted at more rate hikes to come by mentioning the factors that might determine “the extent of additional policy firming.”
During his press conference, Fed Chairman Jerome Powell said policy makers remain strongly committed to bringing inflation down to their 2% target, and that “the economy doesn’t work for anyone” without price stability. Though inflation has moderated since last year, the process of getting it to the Fed’s target “has a long way to go.”
Powell also said that it will take time for the Fed’s rate hikes to make their way through the economy, and policy makers will make their decisions on a “meeting-by-meeting” basis.
Fed funds futures traders now put the chances of another 25-basis-point hike, which would take borrow costs to 5.5%-5.75%, at the September or November meetings at 20.3% and 37.3%, respectively, according to the CME FedWatch Tool. The central bank is expected to take its fed funds rate target back down to around 5% or lower next year, according to 30-day fed funds futures.
In U.S. economic data released on Wednesday, new home sales fell to a 697,000 annual rate in June versus a revised 715,000 in the previous month.
Later this week, the European Central Bank and Bank of Japan will respectively deliver policy decisions on Thursday and Friday.
What analysts are saying
The Fed’s decision “came in exactly in line with what the market was expecting,” said Emily Roland, co-chief investment strategist for John Hancock Investment Management in Boston. “The bond market was pricing in a 97% probability of a 25-basis-point hike and there really weren’t any meaningful changes to the statement, so the volatility is muted.”
This post was originally published on Market Watch
