Powell Pours Cold Water on "Aggressive Rate Cut," U.S. Treasury Yields End Streak

On September 19th, Federal Reserve Chairman Powell disappointed market expectations of "more aggressive rate cuts." U.S. Treasuries experienced their first weekly decline since mid-August. On Friday, yields on U.S. Treasuries across different maturities increased by 1 to 3 basis points, continuing the upward trend that started after the Fed announced a 25 basis point rate cut on Wednesday. The yield on the 10-year U.S. Treasury, a benchmark, rose slightly to 4.12%, reaching its highest level in two weeks. Powell stated in the post-decision press conference that policymakers will make decisions on future monetary policy on a "meeting-by-meeting" basis. This statement dampened market expectations of a "rapid rate cut," although the interest rate swap market still tends to believe that the Fed will cut rates twice more this year. Hartford Funds fixed income strategist Amar Reganti said, "Before this Fed meeting, the bond market was extremely optimistic in both sentiment and positioning. The Fed did cut rates once and may cut rates several more times in the future, but this clearly did not justify the market's current expectations." Previously, despite the fact that the inflation rate consistently exceeded the Fed's target and there were signs of weakness in the labor market, the market bet that policymakers would quickly reduce borrowing costs, which led to the increase in U.S. Treasury prices. However, the post-meeting sell-off brought an end to this rally. (FXStreet)