10-year Treasury yield leaps to 4.5% as Fed signals caution on future rate cuts

U.S. Treasury yields jumped on Wednesday after the Federal Reserve announced its latest interest rate cut, but signaled fewer could be on the horizon.

The yield on the 10-year Treasury climbed nearly 12 basis points to 4.504%, and has hovered around the key 4.5% level in afternoon trading. The 2-year Treasury yield surged more than 10 basis points to 4.348%.

Yields and prices have an inverted relationship. One basis point is equivalent to 0.01%.

The Fed announced another cut to interest rates on Wednesday with a decrease of a quarter percentage point. The move, which was widely expected by market participants heading into Wednesday, marked the Fed’s third straight reduction.

However, the central bank also forecast fewer rate reductions in the year ahead, predicting two cuts, down from four previously. The Fed also increased its inflation forecast slightly.

“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Powell said during Wednesday’s post-announcement press conference. “We can therefore be more cautious as we consider further adjustments to our policy rate.”

Indeed, the likelihood of another cut at the Fed’s next policy meeting in January slipped to under 10%, according to fed funds futures trading tracked by the CME FedWatch tool.

“The Fed has entered a new phase of monetary policy, the pause phase,” said Jack McIntyre, portfolio manager at Brandywine Global. “The longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut. Policy uncertainty will make for more volatile financial markets in 2025.”

The Fed’s decision comes after the European Central Bank last week cut rates by 25 basis points for the fourth time this year. The Bank of England is set to announce its own rate decision on Thursday.