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Long-term U.S. bond yields rose again on Thursday, a day after Federal Reserve officials said they expect interest rate cuts next year to be much slower than previously expected.
The yield on the benchmark 10-year U.S. Treasury note rose inversely to prices, rising 0.09 percentage point to 4.59%, its highest level in more than six months, after a sharp rise on Wednesday.
The dollar rose another 0.3% against a basket of peers on Thursday, after surging to its highest since November 2022 in the previous session.
The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, but investors were spooked as officials raised their 2025 inflation forecast and lowered their forecast for further rate cuts. It was the central bank’s last meeting before Donald Trump takes office next month.
Concerns that inflation could stall above 2% led Fed officials to forecast a rate cut of just 0.5 percentage point in 2025, compared to their previous forecast in September. The forecast has been revised downward from full percentage points.
“I think the market was expecting the Fed to cut rates, but it will continue to give them the option of further cuts next year,” said Akshay Singhal, global head of short-term rates trading at Citigroup.
Instead, he added, the US central bank has significantly reversed course and given itself the option to “hold interest rates on hold for a period of time” to absorb the impact of easing fiscal policy, adding that hawkish rhetoric will continue to push the dollar higher. He added that he expected it. .
Investors currently think there’s about an 85% chance the Fed will refrain from cutting rates or cut rates once or twice next year, according to CME Group data based on federal funds futures.
In afternoon trading on Wall Street, the S&P 500 rose 0.4%, well below its previous rise of more than 1%. The main U.S. stock barometer fell nearly 3% on Wednesday, the biggest decline since August.
The tech-heavy Nasdaq Composite Index rose 0.3% after falling 3.6% on Wednesday. Six of the Magnificent Seven have expanded: Apple, Microsoft, Alphabet, Amazon, Meta, and Nvidia. But Tesla shares rallied, falling 2% after falling 8% in the previous session, helped in part by co-founder Elon Musk’s warm relationship with President-elect Trump.
Jeff Weniger, head of equity strategy at WisdomTree, said: “We’ve been focused on Trump[in recent weeks]but now it looks like we’re almost back to a Jay Powell-style stock market,” referring to the Fed chairman. mentioned in. .
The Fed’s hawkish outlook bounced off European and Asian markets Thursday. Europe’s benchmark Stoxx 600 fell 1.5% and Britain’s FTSE 100 fell 1.1%. Earlier, markets in India, Japan, South Korea and Hong Kong also closed in the red.
Emerging market stocks were also hurt, with MSCI’s Emerging Markets Index falling 1.2%.
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