Yields higher after Fed rate cut, Powell comments

NEW YORK – US Treasury yields were mostly higher on Wednesday in choppy trading after the Federal Reserve cut rates by 25 basis points, which was widely anticipated, as investors awaited comments from Chair Jerome Powell for insight on the path of monetary policy.

In announcing the cut, the Fed indicated it will steadily lower borrowing costs for the rest of this year, as policymakers responded to concerns about weakness in the job market in a move that won support from most of President Donald Trump’s central bank appointees.

Only new Governor Stephen Miran, who joined the Fed on Tuesday and is on leave as the head of the White House’s Council of Economic Advisers, dissented in favor of a half-percentage-point cut.

“They have deemed that the downside risk to employment has increased, and therefore it would seem that they are weighting the labor market more than the higher inflation that they noted in their projections,” said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management in Wellesley, Massachusetts.

“In other words, they are laying the groundwork for having a little bit easier policy.”

After the cut, Treasury yields initially erased gains and turned lower on the session before reversing course as Powell spoke, with the yield on the benchmark US 10-year Treasury note hitting a session high of 4.081%. It was last up 2.5 basis points at 4.051%.

The Fed Chair said the central bank is in a “meeting-by-meeting” situation regarding the outlook for rates and he doesn’t feel the need to move quickly.

Yields have fallen in recent weeks as a spate of economic data that indicated a softening of the labor market boosted expectations the central bank will be more aggressive in cutting interest rates. The 10-year note touched a 7-month low of 3.994% last week.

Prior to the Fed statement, markets were fully pricing in a rate cut of at least 25 basis points (bps) from the Fed, with a roughly 4% chance for an outsized cut of 50 basis points, according to CME’s FedWatch Tool.

Market expectations for a cut of at least 25 basis points at the central bank’s October meeting increased after the statement.

The Fed has been under significant pressure from Donald Trump’s administration to rapidly lower rates, and Trump has attempted to fire Fed Governor Lisa Cook.

The yield on the 30-year bond advanced 0.8 basis points to 4.654%.

Earlier economic data showed US single-family homebuilding and permits for future construction dropped in August amid a glut of unsold new houses and a softening labor market, unfazed by falling mortgage rates.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 52.3 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, climbed 1.6 basis points to 3.526%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.46% after closing at 2.443% on Tuesday.

The 10-year TIPS breakeven rate was last at 2.383%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

(Editing by Nick Zieminski)