Fed’s Shift in Tone Sparks Concerns Over Rate Cuts
The Federal Reserve’s latest statement has sparked a significant shift in market expectations, with long-dated bond yields likely to rise as a result. According to Chris Galipeau, senior market strategist at Franklin Templeton Institute, the removal of the phrase “inflation is making progress” towards the 2% target suggests a more hawkish stance from the central bank.
A Change in Sentiment
This subtle yet significant change in tone is expected to have a profound impact on market expectations. Galipeau notes that this comment will be a key point of focus, potentially placing the expectation of multiple rate cuts in 2025 at risk. As a result, long bond yields are likely to increase, reflecting the market’s revised expectations.
Fed Funds Rate Remains Unchanged
On Wednesday, the Federal Reserve left the target range for the fed funds rate unchanged at 4.25%-4.50%, a move that was widely anticipated by market participants. Despite this, the 10-year Treasury yield still managed to fall 4 basis points to 4.516% early Thursday, according to Tradeweb.
Implications for the Market
The Fed’s shift in tone has significant implications for the market, particularly when it comes to long-dated bond yields. As Galipeau notes, “long bond yields should back up on this,” suggesting that investors can expect higher yields in the coming months. This, in turn, may have a ripple effect throughout the economy, influencing everything from mortgage rates to consumer spending habits.
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