Bond Yields Increase Amid Fed Officials’ Comments
Yields on U.S. Treasury bonds saw an uptick on Friday following remarks from Federal Reserve officials suggesting a cautious approach to interest rate cuts.
Key Market Movements
- The 2-year Treasury yield rose to 4.75%, an increase of 4.5 basis points.
- The 10-year Treasury yield climbed to 4.35%, up by 2.3 basis points.
- The 30-year Treasury yield reached 4.47%, marking a rise of 1.2 basis points.
Market Analysis Fed Governor Lisa Cook highlighted in a recent speech that current monetary policy remains restrictive. She emphasized the importance of ensuring that inflation is on track to reach the targeted 2% before considering any rate cuts.
Echoing similar sentiments, Fed Governor Christopher Waller stated that while he anticipates potential easing of monetary policy later this year, the timing and extent of rate adjustments will be contingent upon forthcoming economic data.
These outcomes contributed to the shift in bond yields as investors reacted to the Fed’s cautious stance on interest rates.
Economists Update Rate Cut Expectations
Economists at Goldman have adjusted their forecast and now predict a total of 4 rate cuts for this year, down from 5 previously anticipated. Looking ahead to 2025, they project another 4 rate cuts, aiming to bring the federal funds rate to a range between 3.25% to 3.5%.
Shift in Fed’s Stance
The growing strength in activity data has led Fed officials to dial down their concerns about maintaining the funds rate at an overly high level for an extended period. The emphasis has shifted according to the Goldman economists, who believe that the major risks from previous rate hikes have subsided, making immediate cuts less urgent.
Larry Summers’ Contrarian View
Former U.S. Treasury Secretary Larry Summers, speaking at the FII Institute in Miami, shared a dissenting perspective. He suggested that the next move in interest rates could actually be upwards, citing a robust economy and signs that inflation might not be as subdued as many had assumed. While acknowledging the possibility of four rate cuts, Summers viewed this scenario as slightly more optimistic than his own expectations.
Awaited U.S. Data
Analyzing the situation, professionals at ING indicate that the trajectory of U.S. economic data is unlikely to favor U.S. Treasurys until after the unveiling of the January PCE price index, scheduled for release on Feb. 29.
